Google to ban payday loans from its advertising systems

by NZ Adviser20 May 2016
(Bloomberg) -- Google has passed judgment on the payday loan industry, saying advertisements for these short-term, high-interest-rate products will be banned from the internet giant’s ad systems.

The move removes one of the world’s most effective and traceable marketing tools from an industry that’s faced criticism from regulators and consumer groups over its practices. A group representing the sector called Google’s decision "discriminatory" and a "form of censorship."

It may also affect LendUp, a startup that bills itself as a "payday loan alternative" and that was recently backed by the venture capital arm of Google parent Alphabet Inc.

Starting July 13, Google said it will ban ads for payday loans and "some related products" from its ad systems. That includes AdWords, the company’s main ad service used by millions of businesses to reach people searching for things online.

Globally, Google will no longer allow ads for loans that have to be repaid within 60 days. In the U.S., it is also banning ads for loans with annual percentage rates of 36 percent or higher. Outside the U.S., where prevailing interest rates may be higher and regulation of payday loans limits their effective interest rates, the APR-based ban will not apply, according to the Google policy. 

"When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users," David Graff, a director of global product policy at Google, wrote in a blog post announcing the change.

Google said it will also require all advertisers of personal loans to disclose the term length and APR of their products on the web pages and apps where people land once they click on Google ads. The changes do not apply to the free, or organic, results from Google’s search engine. So future online searches will still show unpaid listings for payday loan providers.

The move to limit payday loan ads drew sharp criticism from the Community Financial Services Association of America, which represents providers of small dollar, short-term loans or payday advances.

"These policies are discriminatory and a form of censorship," Amy Cantu, a CFSA spokeswoman, wrote in an e-mail. Companies that restrict payday loan ads do a disservice to consumers who may need access to short-term credit that they can’t get from traditional banks, she said.

"Google is making a blanket assessment about the pay-day lending industry rather than discerning the good actors from the bad," Cantu said.

One company potentially swept up in the new rules is LendUp, a startup that says it’s trying to expand credit and lower borrowing costs for under-banked Americans. It offers loans that have to be repaid in seven to 30 days, with APRs that often exceed 300 percent, according to its website.

In January, LendUp raised $50 million in equity financing from investors including GV, Google’s venture capital arm. LendUp didn’t respond to an e-mail seeking comment and Google declined to comment on individual companies.

This isn’t the first time Google has banned certain types of ads. In 2014, it banned ads for pornography and the company doesn’t allow other ads for types of gambling or health-care products and services.

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