Dorset's Coastal Credit Union collapses owing £1.1m

A credit union has collapsed, owing more than £1.1m to its 5,200 members.

Administrators said the Coastal Credit Union in Bournemouth and Poole had suffered from low interest rates and rising bad debts.

They said the debt issue was a growing problem for the industry, increasing pressure on the UK's 500 credit unions.

Coastal's account holders will get all of their money back under the Financial Services Compensation Scheme.

Jo Milner from administrators Cork Gully said Coastal was typical of some credit unions which were suffering from the UK's record low interest rates, as well as from defaults on loans to "vulnerable people".

She said: "A lot of credit unions have gone into administration recently. Generally there are increasing problems with defaulting."

In accounts published in September 2014, Coastal declared a profit of £8,024 and proposed a 0.5% dividend to members, saying it had received more income from interest on loans and had halved its bad debt cost.

But the report said the credit union had "negative reserves", and support from Bournemouth Borough Council was set to decline from £50,000 in 2015/16 to £25,000 the following year.

Ms Milner said a new board of directors took over at Coastal at the end of 2015 and raised concerns about the financial health of the company.

The Financial Services Compensation Scheme said most Coastal members would have their funds repaid by cheque or money order within seven days.

The FSCS, fully funded by the financial services industry, paid out £271m because of collapsed funds in 2015/16.

The Bank of England said total pre-tax profits made by English credit unions had risen from £11.4m in 2013 to £16.3m in 2015.