Payday lenders on Wednesday pushed back against Google's plan to ban payday loan advertisements, calling the search engine's policy discriminatory and urging state and federal regulators to intervene.
Google said that beginning July 13 it will no longer allow ads for payday loans with annual percentage rates of 36% or higher, or where repayment is due within 60 days of the date of issue. Google's new policy was the culmination of several months of discussions with consumer and civil rights groups that have long sought to rein in payday loans.
While consumer advocates praised Google for setting a standard for search engines — one they hope to expand to Yahoo, Microsoft's Bing and elsewhere — payday lenders suggested the ban was illegal.
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"This unprecedented abuse of power by a monopoly player should concern lawmakers at both the state and federal levels and should invite scrutiny of state and federal regulators," said Lisa McGreevy, president and CEO of the Online Lenders Alliance. "The policy discriminates against those among us who rely on online loans, especially the large number of Americans who cannot raise $2,000 in case of emergency."
Amy Cantu, a spokeswoman for the Community Financial Services Association of America, a trade group of mostly storefront payday operators, called Google's ban "a form of censorship."
"Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors," Cantu said in a statement. "This is unfair towards those that are legal, licensed lenders and uphold best business practices."
The ban comes just weeks before the Consumer Financial Protection Bureau is expected to propose the first federal regulations of the payday loan industry.
The industry estimates that roughly 12 million consumers use payday loans every year. The loans typically are for between $200 and $400 and have effective annual interest rates of 300% to 500%. Payday loans usually are due in one lump sum after about two weeks.
The CFPB and consumer advocates have long maintained that the structure of the loans forces borrowers into a cycle of debt in which they have to take out new payday loans to pay off the old ones.
"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," David Graff, Google's director of global product policy, said in a statement. "When ads are good, they connect people to interesting, useful brands, businesses and products. Unfortunately, not all ads are — some are for fake or harmful products, or seek to mislead users about the businesses they represent."
The ban will not affect companies offering mortgages, car loans, credit cards, student loans, or commercial loans.
Despite claims of censorship, the Google ban will also have no impact on the ability of consumers to find and obtain a payday loan online. The lender would be unable to generate leads on the site.
The ban may also thwart so-called lead generators that collect information from potential borrowers and sell it to online payday lenders. Payday loans advertisements are one of the main ways in which consumers are funneled to lead generators.
"The online payday loan market will shift modestly from lead generators to direct online payday lenders, but only modestly," said Alex Horowitz, a senior research officer at the Pew Charitable Trusts, which has been studying the payday loan industry for years.
Though Google's ban will not go into effect until July, the industry is already assessing its impact.
"I think there will be a negative impact, but I can't measure it yet," said Gil Rudolph, co-chair of the financial regulatory and compliance practice at Greenberg Traurig, which represents some payday lenders. "Large companies like Google and Facebook are so much into the public domain that they are like utilities, and it is a breach of their duties to the public to make these types of choices for people."
Last year, Facebook announced its own ban on payday loan advertisements.
Google is expected to enforce the ban by requiring that advertisers affirm that they are in compliance with the terms of its policy, said Aaron Rieke, a principal at Upturn, a public policy advocacy group that published a report on how online payday loans are marketed.
Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, a coalition of 200 organizations, called Google's actions unprecedented.
"Google has taken a position that as a company it has its own moral compass to which it must be accountable," Henderson said. "It has made a decision as a private entity to ban certain ads that are not in the best interest of consumers."
