A COMMUNITY savings scheme that was frozen by the Financial Services Authority (FSA) has voluntarily closed itself down.

South West Durham Credit Union folded on Friday after learning that Durham County Council had refused it a £70,000 grant.

The decision ends months of wrangling between the FSA and the union during which time its 840 members were frozen out of their accounts.

It paves the way for an individual investigation by the Financial Services Compensation Scheme (FSCS), which should ultimately compensate all members.

A FSCS spokeswoman said: “Once the investigation is complete, and if the union is found to be in default, we can pay out to members.

“Historically, we have dealt with credit union claims within days, but that is only once they have been found by us to be in default.”

The FSA stepped in last November and froze the union’s activities, reporting it had negative capital of £37,000.

Attempts by the union to raise cash to “trade out” of difficulty failed and a £70,000 grant, to merge with another union, was refused.

A spokesman for the union said the grant equated to £80 for each of its 840 members and that Durham County Council had let them all down.

Stuart Crowe, the council’s director of resources, defended the decision and said merging with other healthier credit unions was unnecessary.

He said the bigger, more successful credit union in north-west Durham was planning to expand across the whole of the county anyway.

“The South West Durham Credit Union’s proposed merger would not bring any added benefits, or create any added problems, for its existing savers and borrowers,” said Mr Crowe.

“The bigger credit union, which has been created from a merger of two others in northwest Durham, is planning to expand to cover the whole of the county, so members of the South West Durham Credit Union would be able to transfer to it.

“Credit unions are not immune to the financial pressures of today, but if one fails and closes, the assets of its savers are protected and not lost.

“On that basis, and given the prospect of the new, countywide credit union being open to new members, the council is finding it difficult to justify making a substantial contribution to the South West Durham Credit Union to simply plug a gap in its accounts to allow a merger to go ahead, when it is not really necessary.”