Google is cutting off its longstanding and lucrative relationship with payday lenders, the search giant said today.
Starting in July, Google will no longer host "ads for payday loans and some related products," the company's global public policy director David Graff said in a blog post. The rules will eliminate advertising for loans with a term shorter than two months, as well as loans with annual interest rates higher that 36%.
"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," Graff said.
Consumer financial services advertise heavily on Google's platforms, and the company made clear the new rules will not affect advertising for mortgages, car loans, student loans, commercial loans, or revolving lines of credit such as credit cards.
“Lead generation and online marketing are the lifeblood of online payday lending,” said Brandon Barford, a partner at Beacon Policy Advisors, a policy research firm. “To not have [Google], to shrink the platform, will be quite devastating."
Consumers frequently turn to Google to find lenders, and the web is home to an whole ecosystem of sites that make their money by luring borrowers through search advertising and then referring them to lenders. A 2011 study by the online advertising company Wordstream found that consumer finance was the second most expensive advertising category on Google, second only to insurance.
While some states have laws that effectively ban payday loans, many companies still advertise and market to customers online to avoid them. Google had already instituted some disclosure rules for short-term lenders, like interest rate information and identifying the company's physical address. It also committed to only showing ads for payday loans if someone actually used the phrase "payday loan."
However, a study by the public policy consulting group Upturn found Google serving payday loan ads when users Googled phrases like "I need money to pay my rent." A 2014 study by the Pew Charitable Trusts found that advertisers paid between $5 and $13 for clicks from searches like "payday loans" or "payday advance."
The online payday lending industry has long been criticized by consumer advocates, who argue that the companies charge very high effective rates because consumers end up using new loans to pay off old ones. A recent study from the Consumer Financial Protection Bureau found about half of borrowers get charged large overdraft fees and have their bank accounts shut down because of aggressive collection efforts by online payday lenders.
Google's new rules were rolled with support from civil rights and consumer advocates, including The Leadership Conference on Civil and Human Rights and the Center for Responsible Lending.
"This ban puts payday loans in their rightful place alongside explosives and tobacco as dangerous products that deserve the highest level of scrutiny from regulators and businesses alike," said Wade Henderson, president of The Leadership Conference on Civil and Human Rights in a statement.
The CFPB is currently looking at further regulations for the payday loan industry that are expected later this spring, accordingly to analysts who follow the industry. The CFPB issued a framework last year for new payday lending rules that would make lenders verify that borrowers would be able to pay back the entire loan.