Imagine you find yourself in a bit of a financial crisis: Rent is due but your car broke down a few weeks ago, eating up few hundred dollars. Now you’re short. You know your family and friends can’t help, so you type the phrase “can’t make rent” into your browser, to see if the Internet has any wisdom to share. You start seeing ads for companies that say they can help. After quickly typing in your information, a company offers you a $500 loan. Painless! But a few weeks later, you can’t pay it back. You spend more money to push back the due date, and now you’re getting solicited by other lenders too, encouraging you to take out another loan if you’re feeling financially squeezed.
It’s a stressful—but totally plausible—scenario, and one that Google is trying put an end to.
On Wednesday, the search engine announced that it would ban ads for payday lenders (and similar services) starting on July 13. In a statement, David Graff, the company’s director of global product policy wrote:
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 percent 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.
Graff added that the new policy “is designed to protect our users from deceptive or harmful financial products,” and will still leave room for companies to advertise mortgages, car loans, student loans, and credit cards.
A report from Upturn, a technology-focused consulting firm, outlines why the use of ad targeting for this specific product is particularly harmful. The report details how an action as simple as searching the term “need money to pay bills” can start a dangerous cycle, in which information about an individual’s location, bank accounts, income, and financial health can be collected by lead generators and then dispersed through a more opaque process that can result in fraud, targeted high-priced loans, and harassment from multiple high-cost lenders. The report concludes that online payday lending is ridden with weak privacy policies and abuses of basic consumer protections.
Pretty much anyone who has used the Internet during the past several years has had an uncomfortable experience with targeted ads. A quick search can lead to constant sales pitches for tangentially related products on a myriad of sites. These ads—which companies target at the demographics most likely to buy their products—are generally just annoying, and somewhat creepy. But in some cases their use can be much more dubious. Google has decided that ads for payday loans constitute one of these pernicious uses.
That judgement is understandable since there’s been a growing sentiment that payday loans are more harmful than they are helpful. The loans are very short term, and carry interest rates that can skyrocket to well over 100 percent if users cannot pay on time and continually roll their loans over (which about 80 percent do, according to the CFPB). It’s also true that these rollovers come with additional fees. Already, the users of payday loans are predominantly low-income, minority households without college degrees or extensive financial education—one reason why payday storefronts are disproportionately located in poor communities of color. These are people who often can’t turn to friends or family for $200 to pay for groceries or a bill if they’re a little short this month.
But by many estimates, the damage done by online payday lenders is much worse. Combining these already-treacherous products with nebulous (and sometimes illegal) practices of lead generators can allow lenders to further target an already vulnerable group and charge them more for services. My colleague Rebecca Rosen once explained the specific danger of targeted ads in these instances: “Consumers are not perfectly rational, as the field of behavioral economics has demonstrated over and over. This leaves them vulnerable to persuasion to make decisions that are counter to their own self-interest,” she wrote. “When corporations purposely seek out a consumer's vulnerabilities and use them to direct her dollars back to them, that is a violation of that person's autonomy.”
This isn’t the first time that Google has waged war on advertisers it deems dangerous. In 2014, the company removed over 500 million ads and banned more than 200,000 advertisers from its search results, some of which were for high-cost, short-term loans. But that’s often not the end of the story. Keeping track of such companies and the growing number of ways they collect data and post ads is a continuous and exhaustive process, one that requires not only vigilance from companies like Google, but also from state leadership, lawmakers, and regulators. That makes the task of consumer protection an even harder one. In some states, payday loans are banned outright. Others are much more permissive, and policing the actions of lenders, lead generators, and their affiliates is daunting.
Ryan Calo, a law professor at the University of Washington, thinks that though this isn’t the first effort Google has made to curb what it deems dangerous advertising (even within the financial sector) it’s a substantial one that will have an effect for both consumers and payday lenders. “It’s one thing to have a bunch of lawmakers take a stand. It’s quite another to have the main search engine not carry ads,” Calo says. “It has a signaling function. Google advertises all kinds of things, but to say, ‘No, not this,’ it’s really taking a stand.” And being excluded from Google’s ads will hurt these lenders’ in real ways. “The reason Google is such a large, powerful lucrative company is because displaying ads alongside search results works,” he told me. Still, he is cognizant that some fear that Google is overreaching, and that by removing these ads they are wading into paternalistic territory. But Calo argues that in this case, that fear isn’t founded. “There’s a big difference between deciding not to carry payday lending ads and downgrading links [in search results],” he says.
Google’s move to a stricter policy follows one of Upturn’s suggestions on how to combat predatory online lending practices: banning payday loan advertising outright, as Facebook has also done. The group additionally suggests that other platforms could strengthen consumer protections by committing more resources to the task of identifying and weeding out dangerous products or preventing the delivery of payday-loan ads according to state laws. Another option is for the Federal Trade Commission and CFPB to institute stronger and more direct oversight of large lead generators. While Google’s ban is a powerful statement, the company won’t successfully root out predatory financial practices alone.