Google, the consumer financial protections advocate?
Just weeks after the Consumer Financial Protection Bureau hinted at new regulations for payday lenders, search engine giant Google offered its own crackdown on predatory lenders. In a blog post on Google’s public policy blog, product director David Graff announced that, beginning July 13, Google will no longer display ads for payday loans and “related products” on its search engine.
Sounding more like a consumer advocate or regulator than an executive at a private company, Graff also noted that Google will help protect consumers from predatory lending practices by barring advertisers from promoting loans that charge APRs above 36 percent — a controversial rate cap consumer advocates have been pushing for years.
“When reviewing our policies, research has shown that these loans can result in unaffordable payments and high default rates for users, so we will be updating our policies globally to reflect that,” wrote Graff in a May 11 blog post.
Graff also quoted consumer advocate Wade Henderson of The Leadership Conference on Civil and Human Rights voicing support for the new policy. “This new policy addresses many of the longstanding concerns shared by the entire civil rights community about predatory payday lending,” said Henderson in a statement. “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.”
Google’s foray into advertising bans isn’t unprecedented. As Graff notes, the search engine often bars advertisements for products it deems harmful for consumers.
“We have an extensive set of policies to keep bad ads out of our systems,” wrote Graff. “In fact, in 2015 alone, we disabled more than 780 million ads for reasons ranging from counterfeiting to phishing. Ads for financial services are a particular area of vigilance given how core they are to people’s livelihood and well-being.”
However, the move is still hugely significant for payday and subprime lenders as well as for consumers. By banning certain types of ads and setting a rate cap on the loans it’s willing to advertise, Google will accomplish a number of goals that have eluded state lawmakers and federal regulators for years: It will help quash payday lenders’ ability to reach vulnerable consumers with predatory online ads and it will turn up the pressure on subprime lenders to develop products that don’t charge rates higher than 36 percent.
It will also weaken payday lenders’ ability to dodge state laws that ban payday loans or set rate caps and it will potentially destroy high cost online lenders who depend on paid search — ads that appear as sponsored listings — to drive traffic to their sites.
So far, Google’s banning of predatory payday loan ads has received the most attention. Consumer advocates have complained for years that payday lenders prey on low-income consumers and people with bad credit by targeting them with online ads. Advocates have also sharply criticized data brokers for setting people up for predatory advertising by selling payday loan customers’ personal details to marketers.
In a press release lauding Google’s announcement, the Leadership Conference on Civil and Human Rights cited an October 2015 report from the tech policy group Upturn that detailed how online lead generators harvest and sell people’s personal information so that unscrupulous lenders can target vulnerable Web users through online ads — including users who live in states that have banned payday lending.
“When people struggle to make ends meet, they often turn to Google to search for answers. These searches trigger advertisements for high interest loans, bought by an industry that traps consumers in cycles of debt,” said Upturn’s Aaron Rieke in the Leadership Conference press release.
Google’s policy only affects paid search ads, rather than search results, but it should deal a crippling blow to a number of online lenders.
However, the search engine’s 36 percent rate cap on advertised loans, including online installment loans, is also notable — and potentially more divisive. The subprime lending industry has fought hard against interest rate caps such as the 36 percent rate cap promoted by consumer advocates, arguing that such a rate cap would cripple their ability to lend to people with a history of missed payments. But if Google’s ad policy weakens subprime lenders’ ability to target potential borrowers online, perhaps some subprime lenders will reconsider and lower their rates.
That would be a big win for consumers since, right now, affordable small dollar loans are extremely hard to find.