A CREDIT union has gone bust despite assuring members just weeks ago that it was not in danger of collapse.

The North Yorkshire Credit Union (NYCU), established from York Credit Union in 2009, encountered financial difficulties after a number of bad debts, according to North Yorkshire County Council.

A spokesperson for the county council said the union also had too many high overheads and relied too heavily on a number of non-recurring grants.

NYCU was placed into liquidation following an order of the High Court on Wednesday (October 31), with Kevin Murphy and Richard Toone from Chantrey Vellacott DFK appointed liquidators.

The Financial Services Compensation Scheme (FSCS) said it is dealing with its largest collapse of a credit union and has pledged to pay back £1.9m to more than 5,000 savers who deposited money into the union within seven days.

The payout process will be automatic with the FSCS using the credit union’s records to send payments to members.

The union was open to anybody who lives, works, studies or volunteers in York and North Yorkshire.

Janet Looker, City of York Labour councillor and chairwoman of the board of directors of the union, said: "It's always difficult for any financial institution to balance its finances. The expenses were just too much.

"We tried to improve the situation but we would have needed significantly more time to come back out of it."

The county council said it is in talks with the South Yorkshire Credit Union (SYCU) in taking over the gap left by NYCU – and said to leave the county without a credit union would be detrimental to residents.

However the council said SYCU has asked for £100,000 to set up in the county and a decision will be made next week by the council’s executive committee on whether to invest or not.

It has been suggested that the money be split between City of York Council, North Yorkshire County Council and Scarborough Borough Council.

Liquidator Mr Murphy said: “The collapse of NYCU is due to bad debt provisions in respect to loans to members of more than £400,000; inadequate credit referencing and credit control; and inadequate cost control, which is partly due to the resources required to service the large North Yorkshire region.”