Payday loans, which Tricking low-income borrowers into swapping temporary cash for unsustainable interest rates is a plague on America’s financial system. That’s why it’s good news that Google will ban payday loan ads, starting this summer.
If you are unfamiliar with the practice of payday loans, you are probably better off. It’s worth recapping some of their worst traits, however, to help understand the significance of Google’s decision. Lenders, increasingly online, offer quick cash loans which are usually due on the borrower’s next pay day. In itself, that’s not bad, but the nature of loans target the poor, and their exorbitant interest rates make them incredibly difficult to repay.
To some perspective, a recent study by Pew Charitable Trusts found that the typical flat-rate APR for online payday loans was 650%. Most credit cards are on average in their mid teens or twenties. The Center for Responsible Lending has found that the average APR for all payday loans is 391%. Lenders generally need to access the borrower’s checking account for automatic withdrawals, whether there is enough money or not. Pew found that nearly half of online payday loan borrowers went into overdraft due to a withdrawal from the lender, while the Consumer Financial Protection Bureau reported that those bank penalties averaged 185. $ per lender.
This is just a small sample of the overwhelming research surrounding the practice of payday loans. The CFPB is currently considering a proposal that would impose stricter limits on practice, but a decision is not expected until late spring. In the meantime, Google will do what it can to dissociate itself from predatory lending and hopefully save a few people from debt headaches.
The payday loan industry is understandably in turmoil. “These policies are discriminatory and constitute a form of censorship,” a spokesperson for the Community Financial Services Association of America told WIRED. “The Internet is meant to express the free flow of ideas and improve commerce. Google does a comprehensive assessment of the payroll industry in the loan industry rather than distinguishing good players from bad players. It is unfair to those who are bad guys. legal, licensed and best business practice lenders, including CFSA members. ”
Google’s ban, which goes into effect on July 13, targets a specific category of lenders. The ban will apply to companies offering loans maturing within 60 days of the date of issue, and in the United States, also to loans with an APR of 36% and above.
“When reviewing our policies, research has shown that these loans can result in unaffordable payments and high default rates for users.
Banning ads is also not a new practice for Google; as Graff notes, last year the company turned off nearly 800 million ads for practices such as counterfeiting and phishing. By taking action against technically legal but morally bankrupt payday loans, Google is taking a more aggressive approach to consumer protection. Good.
“I think this action is as unprecedented as it is important,” wrote CRL executive vice president Keith Corbett. “For example, Google demonstrates how profitable businesses can also be ethical and support financial fairness… By removing ads that lure cash-strapped consumers into unaffordable, long-term and expensive debt traps, Google shows what corporate citizenship looks like.
Payday loan companies will not be completely banned from Google; they will always appear in search results. If removing the ads makes even a small difference, it’s worth it. Anything that makes it harder for predators to connect with their prey counts as progress.