FCA Handbook - CREDS 7.2 General requirements concerning lending policy

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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 governing body that is prudent and appropriate to the scale and nature of its business.

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 lending.

The credit union’s governing body must review and approve its lending policy whenever there is a material change in the circumstances of the credit union or its membership or, in the absence of any such change, on an annual basis.

The lending policy should consider the conditions for and amounts of lending to members, individual mandates, and the handling of applications for lending.

(1)
A credit union must not lend to:
1. (a)
  one of its officers, certification employees or approved persons on terms more favourable than those available to other members of the credit union unless:
  1. (i)
    that person is a paid employee (other than a director) of the credit union; and
  2. (ii)
    the registered rules of the credit union provide explicitly for the lending to paid employees on such terms;
2. (b)
  (in the case of a Great Britain credit union) a relative of, or any person otherwise connected with, an officer, certification employee, approved person or paid employee of the credit union on terms more favourable than those available to other members of the credit union;
3. (c)
  (in the case of a Northern Ireland credit union) a member of the family of, or any person otherwise connected with, an officer, certification employee, 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.
(3)
"Member of the family" has the same meaning as in article 2 of the Credit Unions (Northern Ireland) Order 1985.

(1)
To prevent conflicts of interest, a credit union should have clear arrangements for dealing with lending to the persons specified in CREDS 7.2.7R.
(2)
In relation to staff, the prohibition in CREDS 7.2.7 R applies only to those who are officers, certification employees 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 FCA on a continuing basis that it has adequate management and control systems in place to monitor arrears.

(1)
A credit union may lend 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 lend to members who are acting together to achieve an aggregate sum of lending that exceeds the limits in the lending policy.