Lender's £1m in loans were "unlawful" One of the UK's oldest credit unions has been censured after it was found to have issued more than £1m in unlawful loans, just a few months after the government committed millions of pounds to expand and modernise the credit union sector. The Pentecostal Credit Union, based in Balham, south London, has been accused by the Financial Services Authority of putting its 1,600 members at excessive risk of financial loss by issuing loans worth £1.2m to an unnamed Pentecostal church organisation, in some cases disguising the money as loans borrowed by individual members of the union. The Rev Carmel Jones, founder and director of the credit union, has been banned from the industry and would have been fined £60,000 but was excused in light of his financial circumstances. Credit unions, which are run as not-for-profit financial co-operatives owned and controlled by members, have been championed by the government as alternatives to high street banks and payday lenders. Earlier this year, membership rules for credit unions were relaxed and the government is spending £38m over the next three years to help them expand. Some unions have already begun to branch out and have started to offer mortgages. These deals require a guarantee from a fellow credit union savings account member and the move helps to fill a gap left by the drop in banks" mortgage lending. Lord Freud, welfare reform minister, said that the government wanted credit unions to shed their image as a poor man's bank and become "a mainstream option for savers and borrowers just as they are in other countries." Membership of the UK's 400 credit unions has doubled since 2006 to about 1m people, but their reach remains small compared with countries such as the US and Australia. As the industry has expanded it has also started to attract more problems. In March, the FSA censured two Glasgow-based organisations for making loans to non-members, including directors, at "favourable terms." This month North Yorkshire Credit Union, which had close to 5,000 saver members, was declared in default and placed into liquidation. A report in May from the Department for Work and Pensions found that the sector was reliant on government money and required significant changes to business models if it was to become financially sustainable. The Pentecostal Credit Union, which has a loan book worth £5.5m, was warned in 2003 by the financial regulator to stop making regular loans to non-members but continued to do so.