CRED 13 Annex 2 Eligibility for membership of a credit union

1Admission of members

1.

It is a condition of registration of a credit union that its membership is restricted to persons who fulfil (directly or indirectly) the qualification stated in the credit union's registered rules (section 1(2) of the Credit Unions Act 1979).

Categories of membership

2.

Eligibility for membership of a credit union is determined by its registered rules. Each member of a credit union should fall within one of the following categories.

(1)

Category 1. Directly qualifying member

A directly qualifying member is a person who:

(a)

meets the membership criteria set out in the credit union's registered rules (section 1 of the Credit Unions Act 1979); and

(b)

is above the age of 16 (unless the credit union's registered rules stipulate a higher age) (section 20 of the Industrial & Provident Societies Act 1965).

Note:

A member who is under the age of 18 may not be a member of the committee, trustee, manager or treasurer of the credit union (section 20 of the Industrial & Provident Societies Act 1965) or receive a loan (section 11(1) of the Credit Unions Act 1979).

(2)

Category 2. Indirectly qualifying member

An indirectly qualifying member ("family member") qualifies only through a directly qualifying member (Category 1 above). This category of membership is available only if the registered rules of the credit union provide for it explicitly.

An indirectly qualifying member ("family member") is a person who is:

(a)

a member of the same household as; and

(b)

a relative of another person who is;

a directly qualifying member of the credit union (section 1(6) of the Credit Unions Act 1979).

(3)

Category 3. Non-qualifying member

A person in this category would originally have joined the credit union as a directly qualifying member (Category 1 ) or indirectly qualifying member ("family member") (Category 2 ). This category of membership is available unless the credit union's registered rules provide otherwise. The number of non-qualifying members should not at any time exceed ten per cent of the total membership of the credit union (section 5(6) of the Credit Unions Act 1979). The registered rules of a credit union should make provision for terminating the membership of members in order to comply with this limit (paragraph 13 of Schedule 1 to the Credit Unions Act 1979).

A non-qualifying member is a person who has ceased to fulfil the membership qualification; that is to say a person who:

(a)

joined the credit union as a qualifying member (whether qualifying directly or indirectly); but

(b)

later ceased to qualify (section 5(5) of the Credit Unions Act 1979).

Note:

When directly qualifying members become non-qualifying members, then all members who qualified indirectly through them will also become non-qualifying members (unless subsequently by some other route they have themselves become either directly qualifying members or indirectly qualifying members). A person who is eligible for membership under more than one category will hold membership under the higher of those categories (so, for example, someone who is eligible under Categories 1 and 2 will be regarded as a Category 1 member, and someone who is eligible under Categories 2 and 3 will be regarded as a Category 2 member).

Category of Membership

Category 1

Category 2

Category 3

Directly qualifying member

Indirectly qualifying member ("family member")

Non-qualifying member

DQM

IQM

NQM

Fulfils the membership qualification set out in the common bond rule of the credit union

Lives in the same household as, and is a relative of, a DQM

Has ceased to be a DQM or IQM

Persons too young to be members

3.

A person too young to be a member ("juvenile depositor") may make deposits with a credit union (section 9 of the Credit Unions Act 1979). A person too young to be a member ("juvenile depositor") is a person who:

(1)

is below the age of 16 (unless the credit union's registered rules stipulate a higher age for entry) (section 20 of the Industrial & Provident Societies Act 1965); and

(2)

would qualify for membership (directly or indirectly) if he were old enough.

This means that in a qualification of residing in a particular locality, an eligible juvenile depositor should reside there (because indirect qualification means being a member of the same household as well as a relative of a DQM). In a qualification of being employed in a particular locality, a juvenile depositor is eligible by going to school or college there.2

Note:

These deposit's are not shares and these depositors are not members.

3A3

Section 9 of the Credit Unions Act 1979 does not require a juvenile depositor to cease to hold an account in a credit union if his parents become non-qualifying members.

Status of transactions

4.

Credit union's may only undertake the activities authorised by their registered rules. If they purport to undertake wider activities, then any transactions arising from such activities are void. Any transactions with an ineligible person are unenforceable.

5.

If a credit union becomes aware that it has admitted ineligible persons as "members", it should immediately take steps to:

(1)

reclaim any loans made to such persons; and

(2)

repay to such persons any sums they have deposited with the credit union by way of share purchase.

6.

There are legal rights - such as the doctrine of unjust enrichment - that should enable a credit union to recover funds lent to such persons. Similar principles should apply to enable such persons to recover any funds deposited with the credit union.

7.

If a credit union discovers that it has admitted to membership a significant number of ineligible persons, it should inform the FSA at the earliest opportunity to discuss the implications and the way forward.

Extension of common bond

8.

Transactions with an ineligible person are not validated if that person subsequently becomes eligible for membership through, say, an extension of the common bond. Although a newly registered common bond extension allows a credit union to admit members in the additional area, it does not have retrospective effect for those who were erroneously admitted before the extension. If funds are not to be returned in accordance with the guidance given under "Status of Transactions" (paragraphs 4 to 7), immediate steps will have to be taken to ensure that proper business relations commence - and are shown to commence - after the common bond extension has been effected. The following steps should generally be taken:

(1)

the credit union should issue a new pass book;

(2)

share deposits and loans should be started again - stating the current position - being entered as new transactions in the new passbook.

Powers available under other Acts

9.

This annex draws attention to a number of offences under the Industrial & Provident Societies Act 1965 and the Credit Unions Act 1979. The existence of these offences does not preclude the FSA from using any other powers that are available to it under the Act.

10.

A credit union, officer, member or other person who does anything forbidden by credit union legislation is liable on summary conviction to a fine not exceeding level 3 on the standard scale (currently £1,000) (section 61(b) of the Industrial & Provident Societies Act 1965 and section 28(1) of the Credit Unions Act 1979).

11.

The registration of a credit union may be cancelled on proof that it has wilfully and after notice from the FSA violated any of the provisions of the Industrial & Provident Societies Act 1965 or Credit Unions Act 1979 (section 20 of the Credit Unions Act 1979).