Last month, search engine juggernaut Google generated international headlines for a significant change to its AdWords policy. This summer, the tech titan will no longer permit payday loan companies that charge excessive interest rates over 36 percent or offer less than 90 days to repay a payday loan to advertise on the search engine.
The move was both lauded and criticized at the time by various people and organizations.
Google defended the change by referring to the industry as “deceptive” and “harmful.” Effective July 13, payday loans would join the website’s other banned categories of advertisements, such as counterfeit goods, weapons, explosives, tobacco products and hate speech.
“Our hope is that fewer people will be exposed to misleading or harmful products,” said David Graff, Google’s director of global product policy, in a company blog post.
The measure was celebrated by public officials and consumer advocacy groups who say payday loans hurt the poor because they handcuff them into the shackles of never ending debt. However, some were quick to pounce on the fact that Google invests in an online payday loan company.
With that being said, Google is still looking to defend the prohibition. Last week, one Google executives compared payday loans online to guns and pornography, adding that payday loans harm consumers because of the high cost of short-term credit, reports the American Banker.
“We don’t allow ads for products that we think are excessively harmful,” said Vijay Padmanabhan, a policy adviser at Google. “While users really do need small-dollar loans, they don’t really need short-term loans.”
Many have questioned why Google chose the 36 percent interest rate figure, though. Padmanabhan cited research that found that most payday loan clients can only afford to provide five percent of their next paycheck. This means it would be difficult to pay back more than the principal amount.
“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,” the Google official stated.
But still, why 36 percent and not five or 10 percent?
“When you pick a number of this sort, there’s a little bit of arbitrariness to it,” he added.
Soon after Google announced its intentions, representatives from the payday loan industry explained that the website is discriminating against the companies involved in this niche. Some have even threatened Google with a lawsuit over the practice. It remains unknown if any business has shown interest in filing a lawsuit against the multi-billion-dollar behemoth.
Proponents of payday loans purport that despite the widespread disapproval of payday loans it’s still a necessary service in today’s economy. Since numerous consumers are unable to access traditional forms of credit, many have no other choice but to turn to payday loans.
But, if the Consumer Financial Protection Bureau (CFPB) has its way, American consumers will have a harder time accessing payday loans because new regulations could prompt stores to close their doors.