Accepting Deposits
(i) Banks
For pre-N2 failures, the previous deposit compensation scheme - the Deposit Protection Board ("DPB") - was automatically entered as a creditor of the failed bank, and had preferential rights to dividends due to the compensated depositor. This no longer applies to FSCS, which relies upon a contractual assignment of rights.
FSCS has continued to receive recoveries by way of dividend payments in respect of pre-N2 failures.
(ii) Credit Unions
Generally, when credit unions cease to trade, FSA intervenes to suspend their authorised status, and if it appears to be insolvent, depositors are referred to FSCS. Other creditors tend to be small in number and value. FSCS seeks to recover any balances of the credit union held in its bank accounts, if necessary by litigation.
FSCS also seeks to collect any outstanding loan repayments due to a credit union. FSCS has outsourced this debt collection on a "contingency fee" basis i.e. an agreed percentage of recoveries is deducted before accounting to FSCS. FSCS retains control over the process, including whether legal proceedings are taken against borrowers. The pursuit of outstanding loans both minimises the cost of claims to the industry and avoids any impression that loans may be considered "written off" following a declaration of default.