Credit unions play a vital role in many communities across the UK. They offer a lifeline to people who may struggle to access traditional banking, providing savings accounts, affordable loans, and financial support tailored to local needs. But what happens when a credit union fails?
In recent years, we’ve seen several credit unions collapse, leaving members confused about what they’re entitled to and whether their money is safe. Here we explain how credit unions differ from other financial institutions, why failures happen, what protection is in place for members, and how to make a claim if you’ve been affected.
What Is a Credit Union and How Is It Different?
Credit unions are very different from traditional pension providers. While pension companies offer long-term investment products designed to fund your retirement, credit unions focus on helping people manage everyday finances.
They’re member-owned, not-for-profit organisations that typically provide savings accounts and small, low-interest loans to people in a specific community or workplace. Unlike pension providers, they don’t deal in investment markets or manage complex retirement funds.
Credit unions are also regulated by both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), and members’ savings are protected up to £85,000 through the Financial Services Compensation Scheme (FSCS), just like with banks and building societies. The big difference is their purpose: credit unions exist to support their members, not to generate profit.
Why Do Credit Unions Fail?
Despite their community ethos, credit unions can and do fail, usually because of one or more of the following reasons:
- Poor financial management – including bad lending decisions or lack of oversight
- Fraud or misconduct – rare, but not unheard of in small financial institutions
- Operational risks – including poor systems, inadequate compliance, or staff shortages
- Unsustainable growth – expanding too quickly without a solid financial base
When a credit union becomes insolvent or breaches key regulatory rules, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) may step in to close it down.
What Happens If a Credit Union Collapses?
If a credit union fails, the Financial Services Compensation Scheme (FSCS) steps in to protect members. The FSCS is the UK’s statutory compensation scheme for customers of authorised financial services firms. It covers savings in credit unions up to £85,000 per person, the same protection as offered for bank and building society accounts.
For most members, FSCS compensation is automatic, funds are usually returned within 7 days of a credit union being declared in default.
But in some cases, members:
- Don’t receive the full amount (e.g. joint or trust accounts)
- Miss the FSCS communications
- Have questions about business, carer, or third-party accounts
- Weren’t aware they were members at all (e.g. indirect deposits)
In these situations, you may need to make a manual claim, and that’s where expert help can make a real difference.
How Much Can You Claim?
The FSCS provides compensation of:
- Up to £85,000 per eligible person per credit union
- £170,000 for joint accounts
- Special rules may apply for trustees, charities, businesses, or accounts held on behalf of others
If your credit union held more than your FSCS limit, you may not recover the full amount, which is why it’s important to know your entitlements.
What Should You Do If You’re Affected?
If your credit union has failed — or you’re not sure whether you’ve been compensated correctly — here are the steps to take:
- Check if you’ve received FSCS compensation
Look for letters, emails, or bank credits from the FSCS. If not, contact them or speak to a claims expert. - Review the amount you received
Was it the full value of your savings? Were you holding the funds for someone else? - Make a manual claim if needed
If you believe you’re owed more, or were missed in the automatic process, you can submit a claim with supporting evidence. - Speak to an expert
A regulated claims service can handle the process on your behalf, check for further entitlements, and ensure you meet all deadlines — often on a No Win, No Fee basis.
Recent Credit Union Failures
Some credit unions that have recently gone into administration or liquidation include:
- London Community Credit Union Ltd (2024)
- Basildon Credit Union Ltd (earlier default)
- North East Warrington Credit Union Ltd
Each case triggers an FSCS investigation and compensation process, and members are usually contacted, but that doesn’t always cover everyone.
Need help checking your eligibility?
Call us on 0800 041 8358 or book a free consultation. We’ll review your case at no cost, and only charge a fee if we successfully recover compensation on your behalf.
This article is accurate as of 7 May 2025 and is based on information from the FSCS, FCA Register, and Companies House.
