NEW ORLEANS — A Google executive compared payday loans to tobacco, guns and pornography Wednesday while justifying the tech giant's decision to ban ads for high-cost, short-term consumer credit.
"We don't allow ads for products that we think are excessively harmful," said Vijay Padmanabhan, a policy adviser at Google.
Google, which announced the prohibition on payday loan advertising
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Google said Wednesday it will ban ads for payday loans to protect its customers from what it considers deceptive and harmful financial products. The ban goes into effect on July 13.
May 11 -
Payday lenders on Wednesday pushed back against Google's plan to ban payday loan advertisements, arguing it was discriminatory and "a form of censorship."
May 11 -
Google should be applauded for deciding to ban payday loan-sponsored ads. But it should tweak some of the details so legitimate lenders can still advertise.
May 17
Payday lenders have been sharply critical of the ad ban, calling Google a monopoly that is abusing its power, and describing the policy as a form of censorship.
Padmanabhan pushed back against the critics during an on-stage conversation at a financial-health conference co-sponsored by American Banker and the Center for Financial Services Innovation.
"It's not censorship," he said, noting that payday loan websites still show up in the company's search results. "We're not doing anything with respect to Google search, even with this change. But like any business, we need to make judgments about where and when we make money."
He added, "It's not really a form of regulation, because we're not capable of regulating."
Padmanabhan, a former law professor at Vanderbilt University who joined Google last year, said that Google has long been wrestling with the question of how to deal with payday loans.
Under the firm's previous policy, Google only accepted ads for payday loans in cases where the user searched specifically for a payday loan, and not in instances where the search was about the consumer's more general need for money. But the old policy was difficult to enforce, Padmanabhan said.
Under the new policy, Google does not accept ads in the United States for personal loans with annual percentage rates above 36%. The firm also bars ads for personal loans where repayment in full is due within 60 days.
"While users really do need small-dollar loans, they don't really need short-term loans," Padmanabhan said.
"Research shows that most borrowers of payday loans can only afford to give up about 5% of their next paycheck. And it makes sense, right? If you have savings, you don't take payday loans. If you take payday loans, you don't have savings, so how are you going to be able to part with more than 5% of your next check? So the reality is though these products are marketed as short-term products, users use them in ways that make them long-term products."
At one point, Padmanabhan was asked why the company settled on the 36% benchmark.
"When you pick a number of this sort, there's a little bit of arbitrariness to it," he acknowledged.
But he added that the 36% APR cap is used in the Military Lending Act and by 13 states plus the District of Columbia, and is also cited by the Consumer Financial Protection Bureau in its proposed payday lending rules. That proposal was released a few weeks after Google announced its ad ban.
Padmanabhan also noted that NerdWallet, a comparison-shopping website, only allows ads for personal loans with APRs that are below 36%.
Once Google clears payday lenders from its ad space, companies that are offering "better products, like those that are under 36%," will be able to fill the void, he said.
At one point during the conversation, Padmanabhan was asked if he is concerned about the impact of Google's new policy on people who are searching for a payday loan.
"Absolutely," he responded. "This is why we took ads for payday loans for as long as we did. … We recognize that those who take these products often have no other choice, or feel they have no other choice. But what our research really convinced us of is that while payday loans might seem like a choice, they're really an illusory choice."
Padmanabhan was also asked to explain Google Ventures' investment in LendUp, an online lender with APRs in excess of 36%.
He responded by noting that Google Ventures is a separate company from Google — both firms are owned by the holding company Alphabet. He also pointed out that unlike many payday lenders, LendUp reports to credit agencies, which allows customers who make on-time payments to improve their credit scores.
But he added: "From the beginning we've been clear that our policy applies to all personal loans. So that means that LendUp is no longer allowed to advertise with us, with respect to products that have an APR of over 36%."
