CREDS 7
Lending to members
CREDS 7.1
Application, purpose and interpretation
- 08/01/2012
Application
CREDS 7.1.1
See Notes
- 08/01/2012
Purpose
CREDS 7.1.2
See Notes
- (1) This chapter seeks to protect the interests of credit unions' members in respect of loans to members under section 11 of the Credit Unions Act 1979. Principle 4 requires credit unions to maintain adequate financial resources and CREDS 5 sets out the FSA's detailed capital adequacy requirements in respect of credit unions.
- (2) This chapter is not relevant to loans between credit unions, except as indicated in CREDS 3.2.6 G (4).
- 08/01/2012
Interpretation
CREDS 7.1.3
See Notes
The rules and guidance in this chapter are in addition to the provisions of section 11 of the Credit Unions Act 1979 in relation to loans made by credit unions. Under these provisions
- (1) a credit union may make a loan only to:
- (a) a member of the credit union who is an individual; and
- (b) a corporate member of the credit union, if the credit union's rules provide that it may make loans to corporate members and making the loan would not result in the aggregate of the outstanding balances on loans made by the credit union to corporate members exceeding the percentage of the aggregate of the outstanding balances on all loans made by the credit union specified by or under section 11 of the Credit Unions Act 1979;
- (c) other credit unions;
- (2) a credit union may not make a loan to a member of the credit union holding only deferred shares.
- 08/01/2012
CREDS 7.1.4
See Notes
- 08/01/2012
CREDS 7.2
General requirements concerning lending policy
- 08/01/2012
CREDS 7.2.1
See Notes
- 08/01/2012
CREDS 7.2.2
See Notes
- 08/01/2012
CREDS 7.2.3
See Notes
- 08/01/2012
CREDS 7.2.4
See Notes
- 08/01/2012
CREDS 7.2.5
See Notes
- 08/01/2012
CREDS 7.2.6
See Notes
- 08/01/2012
CREDS 7.2.7
See Notes
- (1) A credit union must not make a loan to:
- (a) one of its officers or approved persons on terms more favourable than those available to other members of the credit union unless:
- (i) that person is a paid employee (other than a director) of the credit union; and
- (ii) the registered rules of the credit union provide explicitly for the making of loans to paid employees on such terms;
- (b) a relative of, or any person otherwise connected with, an officer, approved person or paid employee of the credit union on terms more favourable than those available to other members of the credit union.
- (2) "Relative" has the same meaning as in section 31 of the Credit Unions Act 1979.
- 08/01/2012
CREDS 7.2.8
See Notes
- (1) To prevent conflicts of interest, a credit union should have clear arrangements for dealing with loans to the persons specified in CREDS 7.2.7 R.
- (2) In relation to staff, the prohibition in CREDS 7.2.7 R applies only to those who are officers or approved persons.
- (3) "Connected" in CREDS 7.2.7 R includes any close business or personal relationship.
- 08/01/2012
CREDS 7.2.9
See Notes
- 08/01/2012
CREDS 7.2.10
See Notes
- 08/01/2012
CREDS 7.2.11
See Notes
- 08/01/2012
CREDS 7.2.12
See Notes
- (1) A credit union may make a loan to a member for a business purpose. However, this does not mean that a credit union may make a loan to a member who merely intends to transmit that loan to another body that will actually carry out the purpose.
- (2) A credit union should not make loans to members who are acting together to achieve an aggregate loan that exceeds the limits in CREDS 7.3.
- 08/01/2012
CREDS 7.3
Lending limits
- 08/01/2012
CREDS 7.3.1
See Notes
- 08/01/2012
CREDS 7.3.2
See Notes
- 08/01/2012
CREDS 7.3.3
See Notes
- 08/01/2012
CREDS 7.3.4
See Notes
- 08/01/2012
CREDS 7.3.5
See Notes
- 08/01/2012
CREDS 7.3.6
See Notes
The outstanding balance of a loan by a version 2 credit union to a member must not at any time be more than:
- (1) £15,000 in excess of the attached shares held by that member; or
- (2) an amount equivalent to 1.5% of total non-deferred shares in the credit union in excess of the attached shares held by that member;
whichever is the greater.
- 08/01/2012
CREDS 7.3.7
See Notes
- 08/01/2012
CREDS 7.3.8
See Notes
- 08/01/2012
CREDS 7.4
Large exposures
- 08/01/2012
CREDS 7.4.1
See Notes
For the purposes of this section, a large exposure is defined as an individual net liability to the credit union which meets both of the following criteria:
- (1) it is at least £7,500;
- (2) it is at least 10% of the value of the credit union's total capital.
- 08/01/2012
CREDS 7.4.2
See Notes
- 08/01/2012
CREDS 7.4.3
See Notes
- 08/01/2012
CREDS 7.4.4
See Notes
- 08/01/2012
CREDS 7.4.5
See Notes
- 08/01/2012
CREDS 7.4.6
See Notes
- 08/01/2012
CREDS 7.4.7
See Notes
- 08/01/2012
CREDS 7.5
Provisioning
- 08/01/2012
CREDS 7.5.1
See Notes
- 08/01/2012
CREDS 7.5.2
See Notes
A credit union must make specific provision in its accounts for bad and doubtful debts of at least the amounts set out below:
- (1) 35% of the net liability to the credit union of borrowers where the amount is more than three months in arrears; and
- (2) 100% of the net liability to the credit union of borrowers where the amount is more than 12 months in arrears.
- 08/01/2012
CREDS 7.5.3
See Notes
In addition to the requirements of CREDS 7.5.2 R, a credit union should consider making the following specific provisions in its accounts for bad and doubtful debts:
- (1) 60% of the net liability to the credit union of borrowers where the amount is more than six months in arrears; and
- (2) 80% of the net liability to the credit union of borrowers where the amount is more than nine months in arrears.
- 08/01/2012
CREDS 7.5.4
See Notes
- (1) A credit union should maintain a general provision for bad and doubtful debts of at least 2% of the net liability to the credit union of borrowers not covered by the specific provisions in CREDS 7.5.2 R.
- (2) Contravention of (1) may be relied on as tending to establish contravention of CREDS 7.5.1 R.
- 08/01/2012
CREDS 7.5.5
See Notes
- 08/01/2012
CREDS 7.5.6
See Notes
- 08/01/2012
CREDS 7.5.7
See Notes
- 08/01/2012
CREDS 7.5.8
See Notes
- (1) CREDS 7.5.2 R requires a credit union to maintain minimum levels of specific provision. However, a credit union that only maintains the minimum levels does not necessarily comply with CREDS 7.5.1 R. This will depend on the assessment and judgment referred to in CREDS 7.5.6 G.
- (2)
- (a) Failure to maintain a general provision of the level indicated in CREDS 7.5.4 E creates a presumption that the credit union is not complying with CREDS 7.5.1 R, though that presumption can be rebutted by the credit union: for example, it may be able to demonstrate that the occurrence of impaired loans that are either below the threshold for specific provision (that is, they are less than three months in arrears) or are unidentified at the time, is very low.
- (b) If, on the other hand, a credit union does maintain the indicative level in CREDS 7.5.4 E, that does not necessarily mean that it complies with CREDS 7.5.1 R.
- 08/01/2012
CREDS 7.5.9
See Notes
- 08/01/2012