Payday loans, which entice low-income borrowers to trade temporary cash for untenable interest rates, are a scourge on the US financial system. Which is why it’s such welcome news that Google will ban payday loan ads, starting this summer.
If you’re not familiar with the practice of payday loans, you’re probably better off. It’s worth recapping some of their worst traits, though, to help understand the significance of Google’s move. Lenders, increasingly online, offer quick cash loans that are typically due on the borrower’s following payday. In and of itself, that’s not so bad, but the nature of the loans target the poor, and their exorbitant interest rates make them incredibly difficult to pay off.
For some perspective, a recent Pew Charitable Trusts study found that the typical lump-sum APR for online payday loans was 650 percent. Most credit cards average out in the mid-teens or low 20s. The Center for Responsible Lending has found that the average APR on all payday loans is a whopping 391 percent. Lenders typically require access to the borrower’s checking account for automatic withdraws, whether there’s enough money there or not. Pew found that nearly half of online payday loan borrowers ended up overdrawn because of a lender withdrawal, while the Consumer Financial Protection Bureau has reported that those bank penalties average out to $185 per lender.
That’s just a small sample of the damning research around the practice of payday loans. The CFPB is currently considering a proposal that would place stricter limits on the practice, but a ruling isn’t expected until later this spring. In the meantime, Google’s going to do what it can to disassociate itself from predatory lending, and hopefully save a few people from debt-related headaches in the process.
The payday loan industry is understandably upset. “These policies are discriminatory and a form of censorship,” a spokesperson for the Community Financial Services Association of America tells WIRED. “The internet is meant to express the free flow of ideas and enhance commerce. Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors. This is unfair towards those that are legal, licensed lenders and uphold best business practices, including members of CFSA.”
Google’s ban, which goes into effect July 13, does target a specific class of lender. The ban will apply to companies offering loans that come due within 60 days of the issue date, and in the US, also to loans with an APR of 36 percent and up.
By taking action against technically legal but morally bankrupt payday loans, Google is taking a more aggressive approach toward consumer protections. Good.
“When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that,” wrote Google global product policy director David Graff, announcing the change.
Banning ads is also not a new practice for Google; as Graff notes, last year the company disabled nearly 800 million ads for practices like counterfeiting and phishing. By taking action against technically legal but morally bankrupt payday loans, though, Google is taking a more aggressive approach toward consumer protections. Good.
“I think this action is as unprecedented as it is significant,” wrote CRL executive vice president Keith Corbett. “By example, Google is demonstrating how profitable enterprises can also be ethical and supportive of financial fairness… By removing ads that lure financially-strapped consumers into unaffordable, long-term and costly debt traps, Google is displaying what corporate citizenship looks like.”
Payday loan companies won’t be banned from Google altogether; they’ll still show up in search results. If removing the ads makes even a small difference, though, it’s worth it. Anything that makes it more difficult for predators to connect with their prey counts as progress.