Credit unions offer a way of both saving and borrowing

The Financial Services Compensation Scheme (FSCS) has started processing claims at the Caia Park Credit Union which became insolvent last month.

The body expects to pay out about �30,000 to the affected members, with the average claim between �65 and �100.

The Financial Services Authority said the credit union became insolvent after running into "financial difficulties".

Loans

Credit unions are financial co-operatives owned and controlled by their members, which offer low-rate loans.

The FSCS pays compensation to people who lose money as a result of a financial services company going bust, giving savers 100% of the first �35,000 they have lost.

It is also paying compensation to 1070 members of a credit union in London which became insolvent at the same time.

Loretta Minghella, chief executive of the FSCS, said: "FSCS performs a vital role in protecting consumers and maintaining confidence in the financial services sector.

"We have stepped in to help members of these two credit unions and have already made the first payment."

The FSCS is posting compensation application forms to all members of the credit unions affected.