CITY leaders were warned they were taking an “extremely high risk” when they loaned York’s doomed credit union £100,000, it has been revealed.
The Liberal Democrats leading City of York Council in 2008 recommended lending York Credit Union almost twice as much as officials said was safe, despite being told the authority would be “at the back of the queue” for repayment if problems arose.
The North Yorkshire Credit Union – which the organisation later became – collapsed in November and the loan was written off.
Records of the January 2009 full council meeting where the £100,000 loan was approved also show former Liberal Democrat councillor Steve Galloway asked for a recommendation that a council representative should join the credit union board and keep a check on its financial position to be altered.
The change, saying the authority should instead monitor the credit union’s finances in a way officials deemed “acceptable”, was agreed.
Coun James Alexander, the Labour-controlled council’s leader, claimed this watered down scrutiny and called for an investigation into the Lib Dems’ handling of the situation.
The Lib Dems accused Coun Alexander of “gutter politics” over the credit union’s demise, saying Labour supported loaning the full £150,000 it requested in 2008.
Officials had said only a loan of up to £52,000 would be “secured”, and the credit union’s lack of assets meant any financial difficulties would leave the council with a “significant loss”.
Coun Alexander said the Lib Dems also approved credit union grants totalling £32,000 “with no scrutiny”.
He said: “Serious questions need to be asked about why Steve Galloway removed the oversight requirement, the council’s then-executive approved more funding than Financial Services Authority guidelines recommended, and further funds were allocated with no oversight.
“Labour has approved a £50,000 grant to the South Yorkshire Credit Union to have a York presence, which is not a loan and is not being used to lend to customers. This credit union has a good business track record and council oversight is being given. We will not repeat the mistakes of the Lib Dem administration.”
Alongside Conservative councillor Paul Healey, Lib Dem leader Carol Runciman has proposed a scrutiny review into how the council monitors external loans and grants, to address “serious questions” about the process.
She said the loan and grants allocated under the Lib Dems were supported by all parties, as were checks agreed by council finance bosses.
Mr Galloway said York Credit Union initially succeeded before “appearing to over-extend itself”, and he made no decisions over it after 2008 as he was no longer council leader and had no responsibilities for financial affairs.
He said: “What must be explained is how, during the last two years, the council’s interests were protected by Labour cabinet members when it must have been clear the credit union was slipping into difficulties.”