If you’ve ever been on the internet and seen a payday loan ad, Google has a hand in making that practice come to an end. Payday loan agencies offer small loans, usually a few hundred to a few thousand dollars, borrowed against your next paycheck. Interest rates can be sky-high and often trap people in a constant cycle of debt. They’re banned from operating in many states, but they can still find customers online – mostly through online advertising.
Google recently announced, however, that all payday loans ads will be banned from the site as a result of reactions to advocates who believe that the payday loan practice exploits vulnerable and poor individuals by giving them upfront cash but not clearly informing borrowers of the true cost of the loan. Any lender who charges annual interest rates of 36% or higher in the United States will be forbidden from placing an ad on Google’s network.
What Google’s Decision Means for the Financial Industry
This is the first situation in which Google has announced any worldwide ban on types of ads for financial products. The majority of prohibited advertisements on Google to this date include largely illegal activities like selling drugs, explosives, and guns, and the search engine giant has cracked down on ads that are graphic or sexually explicit in nature.
The payday loan industry finds plenty of customers on the internet, but advocates of the move hope that it will help prevent vulnerable and low income individuals from being taken advantage of. The move is an important first step for major tech companies who have to take a stand and weigh in on major policy issues of the day.
Facebook has also banned payday loans but other companies, including Yahoo!, still allow them. And consumers will still be able to find payday lenders by searching for them. However, advocates feel this is an important step in making payday loans less attractive and less available to vulnerable consumers.
Why Did They Do It?
Like much of the tech industry, Google want to use its influence to discourage practices they believe are harmful in order to protect consumers – they don’t want to encourage the payday loan industry. Hopefully, this move sends a message about the dangers of payday loans and makes consumers less likely to pursue them. Google has also been under plenty of pressure from advocates to ban these kinds of ads.
Payday lenders have been in the hot seat recently with more than just Google. Regulators and legislators have continued to attempt to limit their activities, including capping total loan amounts and interested rates. As mentioned above, some states have completely banned it. The Consumer Financial Protection Bureau is also working on putting together a rule affecting the payday lending industry – they want to require verification of the consumer’s income and borrowing history and would cap the number of times the loan could roll over. They also want to require that those advertising financial products online state the annual interest rate and the length of the loan right on the ad.
But this governmental activity hasn’t stopped payday lending. Some believe that Google and Facebook’s moves will actually be more effective; so many consumers were seeing those ads and now they’re gone. They’re much less likely to learn that payday loans are available in the first place.
Payday Lending Industry Responds
Payday loan industry officials believe that the move is discriminatory, stating that some consumers need access to these products. Borrowers often reach out to payday loan services in order to get cash quickly between paychecks with the intention of paying the balance on the next payday and may not have other easy access to cash. However, it can be difficult to get out of the borrowing cycle when the fees mount quickly and interest rates can be in the triple digits. Given the fact that many individuals turn to the internet first in order to search for their options, someone in a pinch may be tempted to make use of a payday lender without realizing the significant financial consequences.
Don’t Get Stuck In Payday Debt
At the end of the day, payday loans are very dangerous for vulnerable consumers. With sky-high interest rates and fees, they’re more likely to trap you in debt than solve your cash shortage problem. If you’re struggling to make ends meet, consider seeking out your local community support organization for help.