On May 11, 2016, Google announced its plan to ban “payday loans” from advertising on Adwords, its pay-per-click (PPC) platform:
“Today we’re sharing an update that will go into effect on July 13, 2016: we’re banning ads for payday loans and some related products from our ads systems. We will no longer allow ads for loans where repayment is due within 60 days of the date of issue.
In the U.S., we are also banning ads for loans with an APR of 36% or higher. 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.”
Many in the short-term online lending industry were surprised by the announcement, which seems to be in lock-step with the current administration’s Operation Choke Point, an initiative launched in 2013 by the United States Department of Justice, whose stated intent was to “attack Internet, telemarketing, mail, and other mass market fraud against consumers, by choking fraudsters’ access to the banking system.” Critics of the program say it was used to put the financial squeeze on entire industries such as firearms sellers and payday lenders.
So what’s the problem?
After all, there are many payday loan companies out there with bad reputations, and for good reasons: exorbitant interest upwards of 700% APR, hidden fees, confusing terms, poor customer service, misleading advertising, and overly aggressive collections practices, are a few examples of the kinds of bad behavior Operation Chokepoint is trying to eliminate. But the (perhaps) unintended consequence is that the ever-increasing regulations make it more and more difficult for newer lenders, including those like Wise Loan, who have a different point of view on the right way to lend, to offer its services.
The fact is, higher interest loans exist for a reason. In a recent study by the CFED (Corporation for Enterprise Development, http://assetsandopportunity.org/assets/pdf/2015_Scorecard_Report.pdf), it’s estimated that around 56% of Americans have subprime credit scores, which means that when the average American walks into a bank looking for a loan, more than half of them won’t get it. Having lower than average credit doesn’t stop the average American from needing cash from time to time, such as for emergency short-term needs like having a car repaired, hospital bills, or other unforeseen needs.
So companies like Wise Loan and other responsible lenders have stepped in to fill these needs. These lenders, including Wise Loan, charge more than 36%, sometimes way more, because, quite simply, the risk associated with providing loans to this population of Americans is way higher. According to the Washington Post, when the not-for-profit organization Goodwill Industries tried several lending experiments, operating from its own storefronts, it had to charge a 252% APR just to break even. And as even the Federal Reserve has pointed out, “Except for the ten to twelve million people who use them every year, just about everybody hates payday loans.”
So, does Google really think payday loans and other high interest loans are a bad idea?
Except that it still allows PPC advertising for other harmful industries, like online gambling.
Except that Google invested directly in Lending Club, and Google Ventures invested in LendUp, both leading online lenders.
Except that the most lasting and obvious result of the ban is that it will advance the market for established lenders because it makes the barrier to entry for new companies extremely high by removing the ability to buy advertising, and increasing reliance on Search Engine Optimization to attract new customers, which gives these more recognizable lenders an indisputable hand up.
Whatever Google’s actual intentions, the ban isn’t going to stop high interest lending, but established companies may benefit from an increased market share. And it isn’t going to put the bad players out of business, but it might make it harder for consumers to find them.
Here at Wise Loan, we will simply to keep doing what we do best: provide loans in a friendly and efficient way that provides our customers with the funds they need in a way that they can afford, reward good repayment history with lower rates over time, report positive payment history, give our customers cashback in the form of our NestEgg savings program for every dollar repaid on time, develop customer tools for financial education and literacy, and continue to seek out new technology to improve our offering and lower costs over time.