CREDS 7.2 General requirements concerning lending policy
A credit union must establish, maintain and implement an up-to-date lending policy statement approved by the committee of management that is prudent and appropriate to the scale and nature of its business, having regard to the limits outlined in CREDS 7.3 to CREDS 7.4.
A version 2 credit union must provide the FSA with a copy of its lending policy statement as soon as reasonably practicable after it has been approved by the committee of management.
A principal purpose of credit unions' business is the accumulation of members' savings to provide a fund out of which loans are provided for the benefit of the members. Credit unions may often in practice have less scope to minimise credit risk through the exercise of discretion than some other lenders. It is therefore important that a credit union has a carefully considered and effective lending policy statement.
CREDS 2.2.6 R requires a credit union to maintain a manual of its policies and procedures. This should include the policy and procedure for making loans.
The credit union's committee of management should review and approve its lending policy at least once a year, and more frequently if necessary (for example if there is an escalating arrears problem), especially in the light of significant changes in business.
The lending policy should consider the conditions for and amounts of loans to members, individual mandates, and the handling of loan applications.
- (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;
- (i)
- (b)
(in the case of a Great Britain credit union) 1a 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;1
1 - (c)
(in the case of a Northern Ireland credit union) a member of the family 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.1
- (a)
- (2)
"Relative" has the same meaning as in section 31 of the Credit Unions Act 1979.
- (3)
"Member of the family" has the same meaning as in article 2 of the Credit Unions (Northern Ireland) Order 1985.1
- (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.
A credit union should have a documented arrears management policy, setting out the procedures and process for dealing with borrowers who fall into arrears. This should be reviewed regularly and promptly in the light of experience.
A credit union should have a clear, robust and effective approach to handling arrears and be able to satisfy the FSA on a continuing basis that it has adequate management and control systems in place to monitor arrears.
A credit union should ensure that loan assets are valued correctly in their accounts. A provisioning policy relating to problem loans and arrears cases should be clearly defined and documented covering the circumstances in which provisions are to be made.
- (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.