Google’s company motto is well known: “Don’t be evil.” In the ongoing discussion about what that means, the search engine has taken a new step and banned advertising by payday loan companies from its sponsored search results. Although the companies still might appear in the list of organic results, they will no longer appear in the prized positions at the top and side of the page.
For Google’s purposes, the definition of payday loan companies refer to those lenders that demand repayment of the loan within 60 days and that charge annual percentage rates that exceed 36 percent. Many policymakers have expressed concerns about the practices of such companies, which tend to target consumers who have low or unstable sources of income and relatively poor credit ratings. When faced with an emergency that they cannot pay for, consumers often might search for solutions online—where they are likely to find promises from the loan companies that offer ready access to funds. The “slick” advertising highlights the ease of the loan process but rarely makes the extremely high interest rates and demanding repayment timelines sufficiently transparent.
In turn, some of the most vulnerable consumers, who struggle to pay their regular bills, wind up entering into a debt cycle in which a loan for a few hundred dollars ultimately winds up costing them thousands, through compounded interest and penalties. In its attempt to protect its users from such “deceptive or harmful financial products,” Google has placed unethical payday lenders in the same category as tobacco and gun sellers, which Google also bans from sponsored advertising on its site.
Some loan industry representatives claim the ban is too widespread, such that it restricts not just unethical lenders but also legitimate businesses that provide credit to people who would be unable to obtain a traditional bank loan. Furthermore, the ban might be considered a form of censorship, especially considering that payday loans are legal and do not involve the direct health threats that are associated with the other types of banned advertisers.
But a report by the Pew Charitable Trusts also reveals that payday loans obtained online, which account for about one-third of the market, often charge even higher interest rates than the loans that consumers receive in the physical store locations. One estimate indicates that the annual percentage rates exceed 300 percent in many cases. Consumer advocates thus have called for other search engines to ban the advertisements as well, even as they pressure regulatory bodies to impose more limits on the kinds of advertising that the payday loan companies can spread.
- Why is Google banning sponsored ads by payday loan companies?
- What arguments do reputable payday lenders have to contest this move?
Source: Christine Hauser, “Google to Ban All Payday Loan Ads,” The New York Times, May 11, 2016