Millions of struggling families fall into the payday loan “trap” each year. Other people borrow money at excessively high interest rates. Google, the world’s largest search engine as well most valuable technology company, will be doing its part to protect the vulnerable. Effective July 2016 they will no longer accept advertisements from payday loan companies or lenders that offer financing at over 36% APR interest rates.
These payday lenders, such as Advance America as well as ACE Cash Express and many others, currently place advertisements on Google’s search results page. Other ads come from personal financing companies. So when someone is searching for loans or other sources of financing, these payday loan companies will often show up in the top of the results as a result of the ads. Going forward this will no longer occur.
The search company expects that as a result of these policy changes fewer families will turn to these high priced lenders. And high priced they are. While there are many different factors that come into play that could impact the APR, interest rates on a payday loan can range from 100 to 500% annual APR. There have even been some sporadic reports of borrowers needing to pay even higher costs that that.
Not only are the interest rates incredibly high, but many vulnerable as well as desperate people may take out a payday loan as a result of what they see on google. Maybe a senior citizen needs a medication, or a single moms is about to have her power turned off. Some of these people find an advertisement on google from a payday company and borrow from them. This often leads them into a cycle of borrowing that is hard to stop.
Pros and cons to the Google Ban
There are pros and cons to this change. Of course the industry is against the ban, and many experts are for it. Some of them are as follows.
Pros – By Google not allowing payday loan or other high priced lenders to advertise, it may be more difficult for struggling families to find these companies and borrow money from them. Another positive is that it may force some of these companies to create more affordable offerings, so maybe the interest rates they charge will be competitive. It may also push people to re-enter the mainstream bank system.
Cons – Lenders, including Advance America, say that they are providing a needed service to the community. They state that most banks and many lenders will not loan money to a person with a low or even no credit score. So payday lenders fill a needed gap in the marketplace. Whether you believe it or not, this is their argument.
So the con to google banning advertisements this year is that some people may turn to even worse alternatives. The fear is that someone with poor credit uses a loan shark or even maybe gamble to raise the money they need. Or they may even turn to more drastic sources of funds in a moment of desperation.
Due to the risk of these other actions occurring, therefore ACE Cash Express and other lenders want Google to reverse their stance. They think the ban can do more harm than good. They also want less regulations from the Consumer Financial Protection Bureau.
When Google stops these ads in July 2016, families can still learn about or even take out a payday loan. They just will not see as many offers from them when using google. So this ban does not address the underlying problem, which is should these high priced loans even exist at all? Aren’t there better alternatives to people who need financial help? So while no one knows exactly what will happen towards the end of 2016 (after this ban goes into effect), time will tell.