In May 2016, Google announced that starting July 13, they were going to ban payday loan ads that featured a high-interest rate (an APR OF 36% or higher) and a repayment period within 60 days or less from the date of issue.
This wasn’t the first time Google had made such a move. In the recent past, Google has been cracking down on ”questionable” product/service ads. In fact, Google disabled 780 million ads in 2015 for many reasons ranging from phishing to counterfeiting and obscenity. After doing away with porn ads, the latest victims are payday loans among other high-interest financial products/services.
Critics argue that Google has overstepped their boundary in their quest to ”protect” consumers. Google thinks otherwise. During Google’s initial update on the matter in May 2016, David Graff, Google’s Director of Global Product Policy said the move was inspired by Google’s quest to protect its users from deceptive or harmful products only thus the update didn’t affect other types of loans such as car loans, student loans, mortgages, commercial loans and revolving lines of credit such as credit cards.
It’s worth noting that Google had previously taken steps aimed at limiting payday loan ads. These steps were deemed adequate and appropriate. The new update is unnecessary and counterproductive. As discussed below, it will end up increasing the cost of borrowing for users. The update also introduces unnecessary hurdles for lenders, especially those in countries like the UK which already have adequate payday loan regulations in place. The FCA already regulates the UK payday loan industry.
Payday loan industry players in the UK must follow the payday loan guidelines, regulations as well as advertising standards in place or face stiff fines and/or website bans. This makes the UK payday loan industry as transparent as possible to consumers. The only thing this new regulation does is rob UK payday loan consumers the freedom of choice which will in turn make payday loans more expensive since the minimum loan term has been extended. Google has set the minimum term to 61 days but in reality, only a minimum 90 day or 3 month payday loan will pass Google Adwords approval.
This is the first time Google has announced a worldwide ban on ads relating to a broad category of financial products. Google’s move can be traced back to mounting pressure since 2015 from consumer protection and privacy groups as well as the coalition of civil liberties. Civil right groups such as the Leadership Conference on Civil & Human Rights have been very vocal about how payday loans exploit low-income individuals with aggressive but misleading campaigns. Many people believe this influenced the search engine giant to announce a total ban joining another tech giant, Facebook, which stopped displaying payday loan ads in 2015.
The move was, and is still, expected to undercut payday loan business whose clients originate mostly from the internet. It is, however, important to note that payday loan borrowers will still be able to find payday loan lenders via Google search which defies the reasoning behind banning payday loan ads in the first place.
To enforce this policy, individuals and companies wishing to market payday loans via Google ads will be forced to disclose crucial details about the loans in question i.e. the length/term of the loan as well as the yearly interest rate before being allowed to run ads. In addition, other lenders charging over 35% interest rate in the U.S. won’t be able to display ads going forward. The same applies to websites which connect such lenders and distressed borrowers.
Execution of the ban
Although Google announced the ban would be effective starting July 13, payday loans which didn’t meet the new criteria were still showing many days after July 13. It is accurate to say the ban wasn’t well thought-of. Although Google posted an update on July 20 stating that the high-APR policy on personal loans affects U.S. advertisers only, the policy on short-term personal loans is, however, global including the UK.
Also, Google is not accepting payday ads and ads for high-interest loans going forward. Existing ads that meet these criteria will be removed from the system in a few weeks. Google hasn’t however given a definite date this time round acknowledging that the process may take longer than anticipated due to the number of existing payday loan ads, as well as the manual loan term checks, the search engine giant will have to conduct before deciding whether to approve or disapprove ads.
Implications to lenders
Payday loan lenders stand to be affected negatively by this update given the fact that most borrowers learn about payday loans and apply for them through online payday loan ads. The update has also made competition impossible since all lenders are subject to a predetermined minimum term and interest rate. All lenders will be forced to advertise the same products going forward.
Also, Google seems to be favoring established payday loan lenders since such lenders already have established organic search presence and Google isn’t touching organic search ranking with the new update. This is yet another case of established businesses getting unfair advantage.
In regards to policy violations, lenders who violate the new ad policies face ad disapproval, domain disabling and/or account suspension. Ads which don’t meet the new policy guidelines won’t run until they are fixed. Google may also suspend websites which violate the policies openly which simply means such websites won’t be able to run ads until the problem/s are fixed. In case of repeated or serious violations, advertisers face a permanent Google AdWords account ban/suspension
Implications to applicants
Although Google claims the new update is meant to protect its users from being exploited by payday loan lenders, the update has introduced new drawbacks especially in the UK where payday loans are already regulated effectively. For instance, applicants will now be forced to borrow more over longer terms/periods i.e. more than 3 months which will increase the cost of loans for individuals who usually take payday loans for short time periods i.e. two weeks. Take this example;
Borrowing £100 for two weeks at 0.8% per day = £100 + (11.2% x £100) = £111.2
Borrowing £100 for three months (90 days) at 0.8% per day = £100 + (72% x £100) = £172
Holding loans for a longer time period is clearly expensive.
Applicants also don’t have the power of choice when selecting payday loans going forward since all lenders have to offer the exact same products. Applicants can only rely on Google search which will be promoting established lenders only with a high search ranking.