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 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.
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.
A credit union must not make a loan to:
(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;11
(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
"Relative" has the same meaning as in section 31 of the Credit Unions Act 1979.
"Connected" in CREDS 7.2.7 R includes any close business or personal relationship.
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.
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.