Tech giant Google announced last month it will begin banning payday lending companies from advertising on its website. This is the first time the company has imposed a global ban on ads for a category of financial products. In the past, Google has imposed bans on ads for illegal activities or products or services it deemed illicit or dangerous, like selling guns, drugs or explosives; or ads that were sexually explicit or graphic.
The ban, which is set to take effect July 13, comes as a result of pressure from consumer advocates that say payday loans prey on the poor and disadvantaged. Unlike most other forms of credit, to qualify for a payday loan a borrower need only provide proof of income (such as a paystub or verification of government benefits) and a bank account.
In theory, these types of loans are designed to help people meet a small, one-time expense, yet in practice most payday loans are taken out to pay for previous loans. More than three quarters of all payday loans are given to borrowers who are renewing a loan or who have had another payday loan within their previous pay period.
Payday loans trap borrowers in a cycle of debt by charging exorbitantly high interest rates. According to a 2014 study by The Pew Charitable Trusts, annual interest rates on small payday loans can range from 300 percent to more than 700 percent. A borrower finds himself unable to pay off the interest on the loan, and often borrows again, perpetuating a worsening cycle of debt.
The Google ban will apply to companies globally that provide loans that are due within 60 days of issue, and in the United States to loans whose annual interest rate is 36 percent or higher. Payday lending companies may still appear in organic search results, but they may no longer purchase clickable ads (pay-per-click ads) that appear on the top and right-hand side of the Google search results pages.
Facebook already bans ads from payday lenders, a practice it instituted last August. Hopefully others will soon follow the lead of Facebook and Google and institute a ban.
Sources: Montgomery Advertiser and The Washington Post
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