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A Christian credit union in London has been slapped down by financial regulators after it broke the rules when it lent more than a million pounds to a church organisation - despite being told it could only lend money to its individual members.
The Financial Services Authority (FSA) has publicly censured the Balham-based Pentecostal Credit Union (PCU) after it channelled £1.2m in loans disguised as money being borrowed by individuals, some of who had no idea this was happening under their names, to a corporate entity practising the Pentecostal faith.
"This is a disgraceful case of a credit union putting the interests of another organisation before those of its members. The FSA will not tolerate this conduct in the industry," said Tracey McDermott, FSA director of enforcement and financial crime.
"Credit unions are vital institutions for the communities they serve, and the members of the Pentecostal Credit Union deserved better."
Reverend Carmel Jones, who was director of the 1,600-member credit union while these loans took place, has been banned by regulators from working in the financial sector as he was "largely responsible for PCU's failings".
None of the loan payments were made to the individuals who had submitted requests to borrow money.
After the relationship between the PCU and the church organisation broke down in 2009, loan repayments stopped leaving a black hole of £670,000 outstanding.
Jones, who is a disabled pensioner, dodged a £60,000 fine because the FSA said it would cause him severe financial hardship.
Likewise the PCU has also avoided a fine because "any financial penalty imposed on it would impact on all of its members ... the FSA considered that different considerations apply to credit unions, as they are institutions created purely for the benefit of the community and are not generally large financial institutions," according to the watchdog's notice.
Since 1994 the PCU had been making loans to the Pentecostal church organisation for property purchases and repairs.
When credit unions came under the control of the FSA in 2003, regulators wrote to the PCU to point out that loans made to the church organisation, structured in such a way as they were funnelled through by individual members of the Pentecostal church, were potentially in breach of the Credit Unions Act 1979.
The FSA ordered that these loans be stopped as there was "a risk that the loans may not be legally enforceable creating a potential financial loss to the members of the credit union."
Despite further correspondence between the FSA and Jones, who was responsible for creating the structure of the dodgy loans, the PCU continued to lend to its church organisation in this way.
In three circumstances, the individual making the loan application had not signed the forms.
The FSA's notice said the PCU was "unable to demonstrate that all of the individuals were aware that loans had been granted in their names."
Jones has been declared "not fit and proper" by the regulators to run a financial organisation.
He was unavailable for comment when IBTimes UK attempted to contact him.