On Wednesday morning Google announced a change to its advertising policy that’s arguably the biggest blow ever dealt to the predatory short-term lending industry, colloquially known as payday loans.
In a blog post quietly titled “An Update to Our AdWords Policy on Lending Products,” David Graff, the company’s Director of Global Public Policy laid out new rules regarding short-term, high-interest loans:
We’re banning ads for payday loans and some related products from our ads systems. We will no longer allow ads for loans where repayment is due within 60 days of the date of issue. In the U.S., we are also banning ads for loans with an APR of 36% or higher. When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that.
The unprecedented nature of this ban, which goes into effect July 13, shouldn’t be understated. The Washington Post, which first reported the story, points out that this is “the first time Google has announced a global ban on ads for a broad category of financial products.” Before this, the company has only banned ads for illegal and illicit products and services (guns, drugs, etc.). Even with the policy in place, users will still be able to find online payday loan services, but they won’t be served ads which encourage them to take out the loans.
Google’s chosen a pretty good product to hit with its first blanket ban. A Pew Charitable Trusts report from 2014 outlines the extent to which the online payday loan industry is abusive and fraudulent. According to Pew’s research, 9 of 10 complaints to the Better Business Bureau about payday lenders were about online payday lenders, and range from billing issues to fraud and unauthorized sharing of personal information. Thirty percent of online borrowers also told Pew that they were threatened by online lenders, often in violation of federal lending laws.
The decision is a result, in part, of lobbying by a coalition of groups concerned about predatory lending. Wade Henderson, the President of the Leadership Conference on Civil and Human Rights applauded Google. “This new policy addresses many of the longstanding concerns shared by the entire civil rights community about predatory payday lending,” Henderson said in a statement. “Low-income people and people of color have long been targeted by slick advertising and aggressive marketing campaigns to trap consumers into outrageously high interest loans.”
Payday lenders are, of course, not thrilled. A comment left by Manjush Varghese, a VP at ACE Cash Express, on the blog post announcing the rule change reads as follows:
Extremely disappointed.I would love to know some of the facts and research you are referring to. I have been a long-standing, responsible advertiser on Google. Our prior attempts to engage with the policy group at G have been consistently rebuffed. I sincerely wish you had the inclusiveness to engage all parties in these policy discussions. Unfortunate when selective, biased data guides decisions at such a reputable company. I would be happy to share data with you that shows your decision will only end up harming consumers in the long run.
There are almost 200 Better Business Bureau complaints against ACE Cash Express, the company for which Mr. Varghese works. The Consumer Financial Protection Bureau has also taken enforcement action against the company for “alleged use of illegal debt collection practices.”
Ads for payday loans and similar financial services are already banned on Facebook, and have been since August 2015. Once Google’s policy goes into effect the industry will be barred from the two biggest online advertisers by market share; in April Bloomberg reported that Google and Facebook claimed 64% of online advertising revenue, with Google pulling in $30 billion and Facebook $8 billion. For advertisers, it seems, the best way to get in front of people’s eyeballs is through these two platforms—and payday loan companies are now banned from being there.
What’s interesting to see here is that Google is acting more aggressively than the government. The Consumer Financial Protection Bureau is in the process of instituting new rules around payday lending, which the Wall Street Journal points out is usually regulated by states, but that is going to be a much slower process that Google’s. It’s government after all.
And, as with so much of lawmaking, it’s complicated by the fact that the payday lending industry contributes money to campaigns; the money-in-politics tracking website Open Secrets places their giving in the 2016 election cycle alone at over a million dollars. This clearly comes to bear on lawmakers’ opinions, as it did in a February 2016 House Financial Services Committee hearing on the CFPB’s new rules, where Rep. David Scott (D-GA) echoed the 2013 words of a banking lobbyist defending since-banned consumer bank services that mimicked payday-loans.
Online payday lending isn’t illegal, but it is predatory, and what Google is doing here is making what’s effectively an ethical decision. In early April BuzzFeed’s Charlie Warzel wrote about what he sees as a trend of tech CEOs positioning themselves as “statesmen shaping the course of human history.” If Warzel is right (and his argument is compelling) this sort of policy can be seen as the downstream effect of state-like thinking by Google: not just hewing to the law when it comes to what can and can’t be sold, but legislating with its considerable platform, since this could well crush the online payday lending industry.
That shouldn’t be taken to mean Google will always act like a state in the public interest; it’s still a company and as such it’ll act in its financial interest. But in this case, it sacrificed advertising revenue from these lenders for its own principles. This time, even if it’s motivated by long-term financial interests, it’s acted well.
Update: I originally referred to Representative David Scott as echoing a payday lending lobbyist. Rep Scott was in fact echoing a banking lobbyist.