In a blog post Wednesday, David Graff, Director of Global Product Policy at Alphabet Inc.'s (GOOG, GOOGL) core division Google, wrote that the search engine would no longer display ads for payday lenders. The policy will go into effect on July 13. (See also: Oracle Google Trial: Round 2.)
Google's ban will affect all lenders that charge annual percentage rates (APRs) higher than 36%, since "these loans can result in unaffordable payment and high default rates for users." Payday lenders will no longer be able to purchase advertising space, but their websites will still appear in search results.
Payday loans are small, short-term cash advances that lenders offer to customers who need money quickly. The loans are generally high-interest, for example, $15 per $100 for seven days. That translates to a 15% interest rate for the time period of the loan, which is steep, but perhaps manageable. On an annual basis, however, the rate is 780%.
Not for long (screen capture of Google search results for "payday loans," May 11, 2016).
When borrowers, who are generally low-income, find themselves unable to pay, they are often hit with steep penalties, or must take out additional high-interest loans to cover the original borrowing costs.
According to Top10PaydayLenders.com, top-ranked CashAdvance.com offers an average APR of 391% (the company's site explains that it is not a lender, but refers customers to providers within its network). Second-ranked RockStarLoan.com, another referral service, offers a range of 220% to 2,290% APR. (See also: Why Wal-Mart Needs To Expand Into Financial Services.)
Facebook Inc. (FB) banned payday lender ads in August. Its policy states, "Ads may not promote payday loans, paycheck advances or any other short-term loan intended to cover someone's expenses until their next payday."
Regulators are also attempting to curb an industry that critics have called predatory. In March 2015 the U.S. Consumer Financial Protection Bureau proposed rules to check what it saw as industry abuses, including the practice of offering additional loans to cover the costs of borrowing.
Google's decision comes as the result of cooperation with the Leadership Conference on Civil and Human Rights. The group's CEO Wade Henderson said that Google's decision "addresses many of the longstanding concerns shared by the entire civil rights community about predatory payday lending." The group has also pressured Yahoo Inc. (YHOO) and Microsoft Corp. (MSFT) to remove payday lenders' ads, but has not received a response, according to MarketWatch.
Google specified in Wednesday's post that the policy will not affect companies offering loans such as Mortgages, Car Loans, Student Loans, Commercial loans, Revolving Lines of Credit (e.g. Credit Cards)."