The Financial Conduct Authority (FCA) has set out views on Employer Salary Advance Scheme (ESAS)

ESAS are commonly promoted as an alternative to high cost credit and have a broadly similar economic effect. While most of these schemes do not fall under the FCA’s regulation, as they do not meet the definition of credit under legislation, given the similarities with some credit products we thought it may be helpful to set out our views to help employers, employees and scheme providers to make informed decisions.

Responding to the FCA’s views The Consumer Finance Association (CFA) said that it is pleased to see that the FCA has recognised some of the risks in the salary advance model that has attracted so much attention as an alternative to short-term credit. The association is concerned that in a rush to introduce alternatives we are at risk of failing to learn the lessons of the past.

Jason Wassell CEO of the CFA, said “In many cases, salary advance schemes are not regulated by the FCA, and so customers have less protection and carry all the risk. There are limited or non-existent affordability assessments before advances are given. But that is not the only potential problem. Advances can be the start of a process of repeat lending, the advance is repaid ahead of priority debts, and regulated lenders see none of this when they check credit files.”

“We risk forgetting past lessons. In looking for alternatives to the payday product of a decade ago, we are ignoring the progress made in regulating consumer credit. We are at risk of promoting an alternative with many of the features much criticised in the payday product.”

“What is worrying is that in positioning themselves as innovative, salary advance providers have attracted support from campaign groups and charitable funds for a model that the FCA says carries risks.”

“More worrying is that while the FCA has identified these issues, they have limited power over these companies.”