ABCUL Guest Blog: When Credit Unions Struggle – Lessons to Strengthen the Sector

Thursday 26 February 2026

Six UK credit unions have failed since May 2024. According to the FSCS “financial difficulties” are the main cause of failure and an unsurprising reason. As a sector, understanding more about why credit unions fail could help increase recovery and turnaround rates and even lead to healthier endings.

Peter Hutchison was engaged as Interim CEO at London Community Credit Union (LCCU) in September 2023. LCCU went into administration in January 2025 closing the doors of its three branches to over 18,000 members. He also worked with CroydonPlus (now Your Community Bank) between 2015 and 2017 as part of a team that successfully turned around the South London credit union.

As a keen supporter of the credit union, co-operatives and mutuals movement, Peter is keen to share lessons learned from the experience to help other credit unions, co-operatives and the mutual sector more widely.

For readers unfamiliar with London Community Credit Union, can you briefly describe its mission, scale and the communities it served?

London Community Credit Union was created in 2000. LCCU had 18,335 members across the east London common bond area covering Hackney, Haringey, Islington, Newham, Tower Hamlets, Waltham Forest and the City of London

A large percentage of its membership could be considered vulnerable within the Financial Conduct Authority Consumer Duty definition.

Looking back, when did it become clear the credit union was facing serious difficulties, and what were the earliest warning signs?

Hindsight is a wonderful thing, sometimes. LCCU had been facing difficulties for a long time before I joined. In the case of LCCU it certainly isn’t obvious when that started or what the earliest warning signs were. Looking at the figures the capital assets ratio started to drop around 2018.

It’s probably more balanced to say there are several moments over many years that contributed to and compounded difficulties, perhaps stretching back 10-15 years: mergers, new products, legacy systems and operational issues, internal processes, COVID, absence of collaboration with the credit union sector, limiting our knowledge and ability to learn. Many ingredients contributed to LCCU facing difficulties and, ultimately, failing.

What do you see as the main factors that ultimately led to the credit union’s failure?

Simply put, we weren’t making a profit. The core credit union business model is very simple. Make enough money from loans to cover costs, including enough to invest and pay members a dividend.

Yes, the margins are tight, which isn’t unique to the credit union sector. It does makes it even more important that the business model is operationally effective and the activity and ethos of the credit union are aligned. The bottom line matters. The reality is far more complex.

Were there any structural or systemic vulnerabilities (such as growth, funding, governance or operating model) that increased risk?

There were a multitude of issues with a compound impact: legacy issues from mergers, new products, member onboarding, loan defaults and debt recovery, operational effectiveness and financial management. It’s a long list.

For example, member onboarding was a process designed to support and report branch activity. As digitalisation emerged the process evolved. The bolted-on online application still required an in-person visit to a branch. This also resulted in duplicate files on the SCV. The quality of that information impacts every activity after that point, from membership communications, savings and account management, loan applications and underwriting, delinquency rates, debt and default management and, when required, debt recovery. Changing the process required significant redesign and new skills, with coordinated and sustained effort, at a time when the organisation was already under stress.

This is just one example. Overall the compound inefficiencies eat into operational and financial performance of an organisation. Legacy issues require work-arounds and duplication of services. Whether created through mergers, system changes or other reasons, the organisations that streamline the work-arounds and duplications are more efficient with the resources they have.

These vulnerabilities can be addressed, but they require a unified team throughout a credit union to work together and tackle the challenges together.

How did leadership and governance dynamics influence decision-making during the most challenging period?

We had many good people at LCCU. Yet within that there is always space for individual growth and team improvement across an organisation. This is especially true of a stressed organisation. The aim is to encourage each person to make themselves better. Some of the people who did this were incredible. Some found it very challenging.

It was made very clear to everyone in the organisation that we had to change at an individual, team and organisation level if we were going to turnaround the prospects of LCCU. Within this we worked hard with the resources we had. We rebuilt teams, we improved and changed processes, we improved governance. Due diligence assessments highlighted areas requiring change and we worked to improve these against a challenging backdrop which uncovered structural, behavioural and performance challenges. We needed everyone to do it and making that happen just wasn’t possible.

With hindsight, are there decisions you would approach differently, or moments where earlier action might have changed the outcome?

Yes. I would have worked harder for a stronger and simpler bottom up and top down approach, pushed on cultural change and stressed the importance of external assistance.

Everyone would have benefited from more training. I would have introduced our online staff training programme earlier. It would have addressed 80% of the issues we were facing while also setting standards of expectations across the organisation.

Culture is key in an organisation and, when margins are tight, effective team work can make the difference. Being honest about what we know and what we don’t know isn’t about a person being good or bad, strong or weak – it creates the space where two people can support each other to share their knowledge.

On the flip side, if someone is holding knowledge, that actively restricts teamwork. We had many good staff, and the ones that engaged with training and teamwork were starting to grow and excel, with ideas and solutions starting to flow. From that core of improvement, you can start to build outwards and see the shoots of change and growth.

What role did regulation and supervisory engagement play as the situation developed?

In addition to required reporting, there were regular meetings.

What do you think boards and executives most often underestimate when a credit union comes under serious stress?

I have worked with more than one credit union under stress, so my response is general rather than specific to a particular credit union.

The issue that is most underestimated, from my experience, is the depth and duration of the work required to turn the organisation around. Understanding the core issues requires openness and honesty – being able to share what is actually going wrong. Without that information the reason for the organisational stress cannot be addressed.

The number and extent of problems will impact the time it takes to start to see green shoots. Whether there is enough time depends on many internal and external factors. In my experience it’s important to get the basics right – the small stuff is important, and papering over those issues simply adds to the legacy problems.

We live in a world of increasing automation which, when it works well, is incredible. If the process has errors, the automation will have errors. Stripping out a process to see the errors takes time, more time when staff – the core part of any credit union – are working within a stressful environment.

For example, the quality of the member data a credit union holds is the core of its business: a wrong phone number, a typo in an email address, an address that has not been updated, employment details, banking details. These are the key data points of a credit union and when the quality of this data is diluted or reduced, this impacts any reports that are used to inform decision making.

What practical indicators should leaders watch most closely as early signs of trouble?

Assuming financial management records are in good order and fit for purpose, leaders should look at member feedback and Financial Ombudsman Service complaints. Both, if reviewed carefully and diligently, will reveal where the key problems lie often in great detail. Of course, that doesn’t work if the complaints process is hidden away. As shared before, there are benefits to being appropriately open.

At what point does recovery realistically become unlikely, and how should leaders respond when they reach that stage?

As before, a general response rather than specific to any particular credit union. All the six credit unions that have failed with member support provided by the Financial Services Compensation Scheme (FSCS) say the cause is financial difficulties.

There are different ways of looking at this, and each organisation would have to decide for themselves how to respond. Options include making improvements, considering a transfer of engagements to another credit union, or closing the credit union in an orderly fashion. Developments around credit union service organisations (CUSOs) could be an option to explore.

In a way the advice is the same that we give to our members. If you are falling into financial difficulties and can’t deliver what’s required, don’t hide. Give us a call and we can explore options.

So for ABCUL members, there are other Credit Unions you can reach out to explore opportunities. Or contacting ABCUL who may be able to help with useful organisations. Talking with regulators is also important and there are specialist organisations that can help with advice and practical assistance.

While recovery is a challenging situation and isn’t always possible, it is possible to manage the best possible end. The Decelerator charity is a free support service for civil society organisations that offers information, tools and hands-on support for better endings.

What are the most important lessons other credit unions should take from this experience?

That is a tough question. While the cause of failure may be “financial difficulties”, it won’t be one thing, it’s more complex than that. Don’t try and do it on your own. Ask for help as soon as you start to be concerned – get ideas and use the experience of others to help you. Sort out the core business model so you can see the green shoots of recovery. Sort out operational effectiveness.

If you could offer one piece of advice to a current credit union CEO or board facing significant challenges, what would it be?

If you’re trying to address the challenges your organisation will have to change – be open to it, explore, discuss and support the change. The reason you are in the current situation is for a multitude of reasons – all of them are relevant. Understanding and solving the problem is going to require change at all levels if you want to survive.

Square up to the situation and the problem as soon as possible. Talk about it honestly and openly. Don’t try and do it on your own. And look after yourself and your colleagues. It is a tough journey requiring resilience and teamwork.