Development: Google announces ban, effective July 13, on advertisements for payday loans.
Takeaway: Google’s new policy is one of several efforts to combat credit products seen as harmful to consumers, including a soon-to-be-released CFPB rule addressing payday lenders.
May 11 (BNA) — Google Inc. will no longer allow advertisements for payday loans as of July, the company announced May 11.
Starting July 13, the online search giant will ban ads for such small, short-term loans, typically made with high interest rates, where repayment is due within 60 days of the date of issue. Google said it will also ban ads for loans with an annual percentage rate of 36 percent or higher.
Google’s new policy furthers an emerging, trend-setting industry standard, Alvaro Bedoya, executive director of the Center on Privacy & Technology at Georgetown University’s law school, said during a May 11 press call. Facebook Inc. already bans ads for payday loans.
“It’s only natural that Microsoft Corp. and Yahoo! Inc. are going to see the writing on the wall and see that their peer companies are saying that they don’t want to profit from this activity,” Bedoya said.
Lisa McGreevy, president and chief executive officer of the Online Lenders Alliance, an industry group, said the move by Google “discriminates against those among us who rely on online loans, especially the large number of Americans who cannot raise $2000 in case of emergency.”
“Limiting their access to the financial system will only exacerbate their problem,” she said in a May 11 statement.
Payday loans are typically associated with high fees and long term indebtedness, according to a recent report by Upturn, a technology law and policy consulting firm. Over 80 percent of payday loans are rolled over or renewed within two weeks, and borrowers become indebted on average for five months per year, the report said.
The Consumer Financial Protection Bureau (CFPB) is expected to propose a rule addressing payday lenders soon. Richard Cordray, the agency’s director, told the Senate Banking Committee in April the CFPB is “on the verge” of releasing a proposal.
Industry Impact
Aaron Rieke, principal of Upturn in Washington, said that lead generators rely heavily on Google to advertise payday lending services. “To have a large advertising platform like Google say it no longer wants to accept these advertising dollars, I think it’s fair to expect that it will have a significant impact on the online payday loan industry,” he said.
Alvaro said that the policy will also set a precedent on privacy issues. Google’s policy applies to paid ads that appear on Google’s search engine when users search phrases relating to the need for fast money.
“When you are in trouble, you reveal to the search engine all sorts of sensitive information that you would never reveal to anyone else,” Alvaro said. “You trust your search engine with that information and implicit in that trust is the principle that the information won’t be used to steer you to use financial products that will ruin you financially.”
Google said in a statement that it last year disabled more than 780 million ads for a variety of reasons, including counterfeiting and phishing. “We have an extensive set of policies to keep bad ads out of our systems and we take these policies very seriously,” Google’s Director of Global Product Policy David Graff said in a statement.
CFPB Rulemaking
The CFPB has been under pressure to regulate the online payday lending market and require lenders to assess a borrower’s ability to repay before issuing loans (108 DER EE-8, 6/5/15).
Last year, the agency published an outline of payday lending proposals under consideration (59 DER 59, 3/27/15). Those proposals would cover short-term credit products that require consumers to pay back the loan in full within 45 days, such as payday loans, deposit advance products, certain open-ended lines of credit and some vehicle title loans.
The proposals would also apply to high-cost, longer-term credit products of more than 45 days where the lender collects payments through access to the consumer’s deposit account or paycheck, or holds a security interest in the consumer’s vehicle, and the all-in (including add-on charges) annual percentage rate is more than 36 percent.
Sen. Jeff Merkley (D-Ore.) pressed the bureau on a rulemaking in a June 2015 letter co-signed by fellow Senate Democrats and, in a conference call with reporters, said, “There is no question that, essentially, payday lending is legalized loan sharking.”
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