Will Google really ban Payday Loan Ads?

Google made a statement on Wednesday that it will ban all ads for Payday Loans from its website. The main reasons are that credit practices are targeted at poor and vulnerable people. And they offer immediate cash that must be returned at high interest rates. But will it really happen? And are there more pros or cons for the customers who need urgent money?

Google's decision for the first time announced a global ban on advertising for a wide category of financial products. By this point, the search giant has banned advertising for mostly illegal activities (sale of drugs, weapons, explosives) and restricted those that are sexually explicit or graphic in nature. Critics of payday lenders say that a similar move by Google and other tech companies could undermine the fast credit business, which finds a huge number of willing customers online.

This step also shows the willingness of big technology companies to weigh critical policy issues and allows you to use their power as a gateway for the Internet. Facebook also doesn't display Payday loans ads. But others, such as Yahoo still do.

Consumers will still be able to find payday lenders in a Google search. But the ads that appear on the right and top of the search results page will not be shown marketing from the Payday lending industry from July 13.

"We will continue to analyze the effectiveness of this policy. However, we hope fewer people will be exposed to misleading or harmful products," said Google's global policy director David Graff.

Washington regulators, as well as several other states, are trying to limit the activities of Payday lenders. This is done by limiting the amount of interest rate they can charge consumers. But the decisions of the tech giants Google and Facebook can have the same impact as any separate regulation in restricting access to Payday lenders.

     This policy on advertising restrictions was called "discriminatory". Some consumers may need access to short-term loans if they can’t obtain credit through a traditional Bank.

"Facebook and others don't differentiate good actors from bad actors but make an overall assessment of the payday lending industry. This is unfair to legitimate, licensed creditors”, - said the Community Financial Services Association of America, a Payday lending trade group.

Millions of low-income Americans use short-term loans. This allows you to quickly get cash by planning to pay off your balance before they get their next paycheck. But too often borrowers fall into a vicious cycle of debt. This is because fees are rising rapidly, and annual interest rates can be triple-digits.

In many cases, this begins with a simple advertising on the Internet, starting with a search query.

"Do you need help? And you look it up on the Internet. As a result, you can give search engines some truly confidential information about your finances," explained Alvaro Bedoya, the executive director of Georgetown Law's Center on Privacy & Technology.

If you decided to make a commitment to pay off your online Payday loan, be prepared for unexpected financial risks. According to an analysis by the Consumer Financial Protection Bureau , half of borrowers who took out online Payday loans later suffered an average of Bank charges or fines of $185 when a creditor has provided automatic requests for repayment, which they could not afford.

And Payday loans taken out online can also face a similar situation. For example, borrowers receiving an average loan of $375 will pay $95 online, compared with $55 at a store, according to the Pew Charitable Trust. 

While the total amount of short-term loans taken out during the year has declined slightly in recent years, online Payday lenders make up a large market share. Jefferies estimate  shows that about 40 % of the roughly $ 40 billion issued in Payday cash advance in 2015 were made online. 

This step may make it more difficult, though not impossible, for online payday lenders to find new customers, said John Hecht, an analyst at Jefferies.

"Of course, when Google changes or restricts ads or search results, it can have a negative impact on the industry at the moment. But consumers who do need a loan will still be able to turn to other search engines,” said Hecht.

The CFPB is working on adopting rules focused on the industry which it expects to introduce later this spring. The agency is considering rules that will limit the number of times consumers can renew a loan. That is also proposed to introduce restrictions in the form of two or three credits. The rules may require lenders to check consumers’ incomes, borrowing history to assess their ability to repay the loan.

Google itself has previously taken some steps to limit the Payday loan ads. The decision to completely ban their ads came after pressure from the coalition of civil liberties, consumer protection and privacy groups.

The Leadership Conference on Civil and Human Rights was one of those groups. “This new policy addresses many of the long-standing issues shared by the entire civil rights community regarding predatory payday lending, " said Wade Henderson, the group's president and chief executive. "Consumers are lured into loans with incredibly high interest rates. And these are mostly people with low incomes and people of color. They become victims of slippery advertising and aggressive marketing campaigns.”

To enforce the policy, those who seek to sell financial products through Google's advertising network will need to disclose the duration of the loan and the annual interest rate. Only after these conditions are met it will be allowed to place ads. In addition to a ban on advertising Payday loans, Google will not show ads from lenders who charge annual interest rates of 36% or more in the United States. The same standards will apply to the brokers that link borrowers to these lenders.

This is important because a single ban on advertising may not be enough, according to some lawyers. "If you enter in a search engine a term that indicates a difficult financial situation, most of the proposed advertising will not be from websites that do not pay salaries to lenders themselves, but marketing companies who collect leads then sold them to the lenders," said Aaron Rieke, one of the authors of the report on online Payday lending advertisements released.

Google, of course, also benefited from these ads. Although they make up only a small part of the company's huge revenue from online advertising. These online advertising companies amounted more than $18 billion in the first quarter of this year. Banning them will mean that the company would lose huge profits.

For lawyers like Bedoya, it's good.

"Google takes a principled position," he said. "I hope this will help set a new standard for search engines.”

But what for to look for unnecessary bans and limits appearing and disappearing regularly in the news when you can just use reliable websites to get the information you need. For example, COMPACOM.com lets consumers compare the best offers online and in-store or if you’ve already decided on the lender and his location you can apply online filling out a simple application form.