Google gives payday lenders the boot
Payday loans have come under fire from consumer advocates and unhappy consumers for their sky-high interest rates.
Google (GOOG), one of the world’s most influential Internet companies, is taking a stand against the financial products, saying on Wednesday that it will no longer accept ads for payday loans starting in July. The company said it decided to bar payday loan ads after reviewing its policies and research that has found the products can result in unaffordable payments and high default rates.
“When ads are good, they connect people to interesting, useful brands, businesses and products,” Google said on its public policy blog. “Unfortunately, not all ads are — some are for fake or harmful products, or seek to mislead users about the businesses they represent.”
Whether the ban has much impact on the payday loan industry remains to be seen, given that most of these short-term loans are made through storefront operations. Still, it could hurt the bottom line of payday lenders — given that about 16 percent of their business stems from online customers — as well as tarnish their already battered image.
Google said the decision was made to “protect our users from deceptive or harmful financial products.”
That characterization is unfair, according to the Community Financial Services Association of America, a trade group that represents payday lenders.
“Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors,” the trade group said in a statement emailed to CBS MoneyWatch. It added that the policies are “discriminatory and a form of censorship.”
The payday loan industry continues to attract scrutiny for what consumer advocates say are problematic business practices. While the short-term loans are marketed as helpful stopgaps when money is tight, borrowers can end up in harrowing financial trouble.
The average annual percentage rate is almost 400 percent, which means borrowers are paying $15 in interest for every $100 loaned to them. Some states don’t have rate caps, which means the interest rates can go far, far higher, reaching the astronomical rate of 1,500 percent.
Google’s ban will include ads for loans with APRs of 36 percent or higher. The change won’t impact companies offering loans for mortgages, car loans, student loans, commercial loans or revolving lines of credit, the company said.
“This new policy addresses many of the longstanding concerns shared by the entire civil rights community about predatory payday lending,” said Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, in Google post’s about the change. “These companies have long used slick advertising and aggressive marketing to trap consumers into outrageously high interest loans — often those least able to afford it.”