Google Kills Advertising for the Payday Lending Industry
Taking the payday loan industry by surprise, Google announced that it intends to kill advertising for short-term loan lenders. While making this announcement, the Internet company accused the industry of using harmful and deceptive business practices. Google could have a greater impact on payday loan lenders than government agencies since many of these loans begin with an Internet search from a financially strapped person in need of emergency cash.
Will the Ad Ban Cause the Payday Loan Industry to Go Under?
NBC4 reports that state legislators have searched for ways to shutter payday loan companies for years, but it has proven to be a scrappy industry. Many lenders have maneuvered around new regulations. For instance, after several states enacted a limit on the interest rates that payday lenders could legally charge, the industry switched to offering loans that were connected to a borrower’s car title. Others entered into partnerships with Indian reservations and moved their operations to these areas to stay in business.
The Consumer Financial Protection Bureau, or CFPB, has the industry in its line of fire as it is actively searching for ways to restrict payday loan lenders from doing business. According to the agency, strict rules are on the way. It is planning to release them later this year.
Google is That Powerful
Google’s announcement about the ad ban may have just topped anything that the CFPB could dish out. The company’s search engine is the most commonly used one with two out of three online searches in the U.S. taking place through its servers. Google also controls the largest digital advertising network in the world.
Google’s ads are usually generated by a search request. The system automatically chooses an advertising pitch related to the search, so if someone is looking for a particular product or service, Google will show them an ad for a company that offers it.
With the payday loan block in place, those who look for loans or begin searches with phrases like “where can I get money?” will no longer see advertisements for payday lenders. The advertising efforts of payday loan lenders online is small compared to other industries, but it has been profitable. In fact, its part in Google’s ad proceeds came to $67 billion last year.
The amount that advertisers are willing to pay Google for marketing campaigns is typically connected to how much profit a sale makes. Searches for low profit markets generally go for a few pennies while phrases that reflect a higher priced product require higher rates. In 2014, Pew researched the profitability of payday loan ads for Google. The research company found that these ads range from around $5 to $13 for every click.
Payday Lenders Are Not Taking Google’s Attack Lying Down
According to Wired, the payday loan industry is justifiably upset. A spokesperson for the Community Financial Services Association of America said, “These policies are discriminatory and a form of censorship. The Internet is meant to express the free flow of ideas and enhance commerce.”
Instead of completing a thorough investigation of payday loan lenders, the Internet giant is making a general assumption about the industry. It’s failing to differentiate the good lenders from the bad. By punishing the entire industry, Google is treating lenders that operate legally and under licensing unfairly. The payday loan industry has its share of lenders that work to maintain the financial world’s best business practices.
Targeting a Specific Category of Lender
Despite the industry’s outrage and claims of unfair practices, Google is targeting certain lenders. The ban will be in effect by July 13, and it will block companies that offer loans under 60-day repayment terms. In the United States, Google will also block lending companies that charge a 36 percent interest rate or higher.
The Week reports that Google will not block people from finding payday lenders when they search for them outright. According to the news source, Google’s actions against lenders could possibly signify an existential crisis for them. However, the payday loan industry is used to adversity, and it would be unsurprising to see it rally.
Waiting for the Impact Against the Payday Loan Industry
The impact of Google’s ban against the payday loan industry remains unknown. Payday lenders spend almost $300 million on radio and television ads. Google will not affect this market. Alex Horowitz, a payday lending industry expert for Pew, said, “Two-thirds of the revenue and loans generated in the industry is done at brick-and-mortar shops as opposed to online payday loans.” Google’s decision will likely harm the online faction of the industry instead of affecting it as a whole. To read more about Google and its intention to kill advertising for the payday loan industry, visit the PersonalMoneyStore.com.