A credit union collapsed with debts of more than £500,000 after many borrowers defaulted on loan payments, an administrators’ report has said.
Solent Credit Union (SCU), based in Southampton, went bust in October.
It failed despite “generous” grants from Southampton City Council and donations from SCU directors, administrators PKF Geoffrey Martin said.
The council and directors are unlikely to be repaid, the firm added.
A “significant proportion” of the credit union’s 354 borrowers, who owed £370,000, were in arrears, the administrators said.
A “bad debt loan ledger”, showing older loans, amounted to a further £133,000, bringing SCU’s total debt to £548,994, the report said.
SCU previously relied on the “generous provision of an annual grant from Southampton City Council” and “philanthropic donations from directors and members” to stay afloat, the report said.
The council owned £50,000 in shares, which are likely to be worthless, the administrators added. It has been contacted for comment.
Four individuals who loaned £21,000 to the credit union are also likely to lose their money, the report said.
All savers will be reimbursed through the government’s Financial Services Compensation Scheme.
Previously, SCU director Nicholas Ridge said the business had struggled to attract customers because of “a lack of investment” and competition from larger organisations.
The administrators said the credit union exposed itself to increasing bad debt by stepping up lending in 2014. It changed its loans policy in 2016 “to reduce the number of high-risk loans made”, according to the minutes of its annual meeting in 2018.
Credit unions are an alternative source of finance for borrowers who wish to avoid high-interest credit options, such as payday loans and rent-to-own firms. Last year nine UK credit unions failed, the highest number of collapses since 2010.