By Paul Lewis
BBC Radio 4's Money Box
Directors estimated savers might get only 60p in the pound
More than 400,000 people who save with credit unions in Northern Ireland are not protected by the compensation scheme which applies elsewhere.
Credit unions in the rest of the UK have been regulated since 2002 so savings up to £50,000 are safe if a union goes under.
But the 182 credit unions in Northern Ireland are not regulated by the FSA.
The exemption has come to light since Presbyterian Mutual Society was put into administration in November.
Kevin Magee, the BBC's Northern Ireland Business Correspondent, told BBC Radio 4's Money Box programme that caused many savers to try to take their money out.
"There was a realisation that the Mutual Society was not covered by the bank deposit guarantee scheme.
"That led to a run on the bank as people wanted to take their money out and put it where the guarantee did apply.
The bank announced it could no longer meet its demands from its depositors and as a result of that the accounts were frozen."
Credit unions in Northern Ireland are regulated by the Northern Ireland Registry of Credit Unions and Industrial and Provident Societies.
Its latest annual reports shows that there is £681m held by 400,000 people in 180 credit unions.
Most of these are members of the Irish League of Credit Unions which runs a voluntary Savings Protection Scheme.
It is discretionary but could pay out up to £10,000 to a member who lost money if a union went bust.
A similar scheme that protects up to 80% of savings lost through "mismanagement" is operated by the smaller Ulster Federation of Credit Unions.
Neither scheme has ever been called on to pay compensation though both have used the money in the scheme to help member unions who have got into difficulties.
Twenty five credit unions are members of neither association and their funds are completely unprotected.
There is no protection either for the 43,700 members of the 84 Industrial and Provident Societies.
Northern Ireland exempt
Money deposited in banks and building societies throughout the UK is covered by the Financial Services Compensation Scheme which covers the first £50,000.
That guarantee also extends to credit unions - but in England, Scotland and Wales only.
But Kevin Helferty, a director of the Irish League of Credit Unions, whose members have 88% of the savings in credit unions in Northern Ireland, says their money is safe "absolutely."
"Of the £660m assets only £450m is on loan to members.
"The rest is in government listed capital secure savings bonds and bank deposits.
"We chase away lump sum depositors. We want members who save regularly.
"If you can't afford to save, you can't afford to borrow.
"We do not exist to make a profit - banks use people to make money - we use money to help people."
A spokesman for the Financial Services Authority told Money Box "credit unions in Northern Ireland are exempt from section 19 of the Financial Services and Markets Act which says you have to be authorised to carry out a regulated activity, which includes deposit taking."
Both the Treasury in London and the Department for Enterprise Trade and Investment in Northern Ireland are looking at the law governing these Northern Ireland bodies, including the question of protecting funds held by them.
A report is expected later this year.
Meanwhile the 9,500 members of the Presbyterian Mutual Society face considerable losses on the £300m they trusted to it.
A third of that was lent to property developers and for buy-to-let loans.
The directors estimated in November that if the society was liquidated then savers might get only 60p in the pound.
But Kevin Magee says "that might be a very optimistic figure."
BBC Radio 4's Money Box was broadcast on Saturday,
31 January 2009 at 1204 GMT.