As of today, Google will no longer accept advertisements for payday loans, defined as loans that will come due within 60 days of origination or with interest rates higher than 36%. Consumer advocates around the country and beyond our borders are applauding the decision as a step toward protecting people in dire financial straits from “solutions” that more often than not put them deeper in debt. Not everyone is cheering, though.
The Community Financial Services Association of America (CFSAA), which positions itself as “the only national organization dedicated solely to promoting responsible regulation of the payday loan industry and consumer protections through CFSA’s Best Practices,” was quick to condemn Google’s decision. The organization couldn’t quite decide, though, what its objection was. In a single paragraph, the CFSAA statement alleged that Google was disguising a “business decision” as consumer advocacy and that “Google kowtows to those activists whose only goal is to eliminate payday lending.”
Aside from the kowtowing allegation, CFSAA claims that the search giant’s decision was designed to offer a competitive edge to LendUp, a payday loan alternative company in which Google’s venture capital arm has invested. It’s not clear just what that advantage will be, since the ban impacts LendUp along with other short-term, high-interest lenders. Outside the industry, the strongest objections come from those who feel Google has too much market share—and thus, too much power—to exercise the type of judgment legally and traditionally left to a private company. While a typical private business may choose the individuals, organizations and industries with which it does business, the argument goes, Google’s 60%+ market share means it wields too much influence.
Is Google’s decision to eliminate advertising for predatory payday loans a socially responsible step toward greater protection for consumers, a simple attempt to create a competitive advantage that will return a profit to the company’s investment division, or an attempt at consumer protection that overreaches and does more harm than good?
The Truth about Payday Loans
Opponents of Google’s ban on payday loan advertising, from industry representatives to individuals engaging in discussion on news sites, argue that these high-interest, short-term loans provide much-needed relief for people living paycheck to paycheck who face unexpected expenses or shortfalls. A certain type of borrower may, in fact, benefit from a payday loan. But, the one-time stopgap picture painted by advocates is far from the norm.
A March 2014 study of 12 million storefront payday loans revealed that 80% of loans were rolled over or renewed within 14 days. 60% of payday loans were made to borrowers who paid more in fees than they’d borrowed. The idea that payday loans help consumers avert financial crisis has been refuted by numerous studies, including reports published in 2009 and 2015 concluding that access to payday loans increased the likelihood of a consumer filing Chapter 13 bankruptcy.
That’s not a surprise when you consider that a recent report from the Consumer Financial Protection Bureau revealed that half of online payday loan borrowers pay bank penalties as a result of debit overdrafts or fails—for an average of $185. Worse, 1/3 of those borrowers who incur bank penalties see their bank accounts involuntarily closed, further complicating an already bleak financial picture.
In a nutshell, payday loans are bad. Pay no attention when that woman from the Cato Institute tries to tell you that all that repeat business can only mean a bunch of satisfied customers.
Does the Financial Data on Payday Loans Justify the Ban?
At the simplest level, of course, it doesn’t matter in the least whether you or I consider Google’s decision not to sell advertising to payday lenders acceptable. Google is a corporation, albeit a massive one with a very long reach. With a few exceptions for protected classes and such, Google can make any decision it wants about its advertising: it can ban yellow, refuse to accept advertisements from flower shops or only accept automotive industry ads that include the letter “J”.
Selective acceptance of advertising isn’t by any means new. Refusal by certain media channels to accept advertising deemed offensive, dangerous to a publication’s audience or simply distasteful to the publisher is well-documented back at least to the 19th century. This type of policy isn’t new to the online world, or even to Internet giants, either. Both Google and Facebook have good-sized lists of advertising they won’t accept. Last year, Google removed nearly 800 million ads in a massive clean-up effort. And, Facebook banned payday loan advertising long before the controversial Google decision.
So, what’s the problem?
Outside those with an obvious vested interest in advertising payday loans, the major concern seems to be that Google is simply too powerful and integral to the way we do business in the modern world to have the luxury of picking and choosing what we see. These arguments tend to ignore the distinction between paid advertising and natural search, suggesting that Google is blocking consumers from access to payday loan information when they want it. That’s either a misunderstanding or a misrepresentation. When a consumer goes looking for a high-cost, short-term loan he or she may qualify for without good credit, that information will appear in natural search results for terms like “short term loans” and “payday loan”—it just won’t be showcased in those prime spots reserved for advertising. And, it’s worth noting, Google won’t be collecting money when a search user visits those pages.
What Does the Payday Loan Advertising Ban Accomplish?
While the fact that payday lenders will still appear in natural search results may be comforting to those who oppose Google’s recent decision, the same fact invites questions as to how much impact nixing the advertising will have. Is the ban more of a public relations move than a substantive one, or truly intended to “kowtow” to the Center for Responsible Lending and other consumer protection organizations? If they’re still serving up plenty of natural search listings for these bad actors, what’s the point?
The answer to this question lies in the way Google ads are targeted. The natural search algorithm endeavors to deliver the most relevant results based on the question the consumer asked. So, if the consumer typed in “payday loans San Antonio,” then the results should yield sites relating to payday loans in San Antonio. AdWords works a little differently.
Consumers Who Aren’t Looking for Payday Loans
Although Google attempts to deliver relevant results even in the paid advertising block, a variety of other factors impact what the search user sees, including the highest bidders for the keywords entered. In the last hours before the ban took effect, I experimented a bit with phrases that would trigger payday loan ads through Google search.
Of course, terms like “payday loans Chicago” brought up relevant ads, which is entirely appropriate (at least, for the few remaining hours in which payday loan ads are permitted). The consumer who is specifically looking for payday loan options in his area gets the results he’s looking for, both in the advertising block and in the natural listings.
Here are a few other phrases that triggered payday loan advertising:
- need money
- need cash quick
- out of cash
Chances are that the person who types “need money” into Google’s search box isn’t looking for a payday loan—if he were, the language would be much more specific. The natural search results for that phrase are very different from the paid slots: eight of the top 10 relate to ways to make money quickly.
In situations like this, because payday lenders paid to tie their advertisements to keywords like “out of cash,” people looking for all sorts of solutions were greeted by a prominently placed invitation to enter the cycle of debt payday lending often triggers. In effect, the Google advertising mechanism was suggesting to people looking for a way to make money quickly that a payday loan might be the answer. Google opted not to facilitate that suggestion, which is entirely different from concealing payday loan information from consumers who are actually looking for it.
AdWords Across the Internet
With critics focused on Google’s dominance in the search market—referred to as a “near monopoly” in much of the negative commentary—there’s been little mention of the fact that Google ads aren’t limited to those prime spots on a Google search results page. They’re also distributed across a display network that spans more than two million websites and blogs covering a nearly inexhaustible range of topics. Even if the designation of Google as a “near monopoly” in the search arena held water, it wouldn’t be strictly relevant to this analysis, which relates to Google’s position in the pay-per-click advertising industry, not the natural search industry.
Here’s how Google’s decision will impact real user experience:
- The person searching for payday loans will still find them in natural search results.
- The person searching for quick financial solutions may still find payday lenders in natural search results, though they probably won’t dominate and other options will appear as well.
- The person reading a blog post about budgeting won’t see them at all—at least, not by Google’s hand.
In short, the advertising ban doesn’t prevent anyone from finding information about payday loans. It doesn’t even prevent anyone from using Google to find that information. Google simply opts out of the process of pitching payday loans to people who weren’t actually looking for them in the first place. In effect, the company has chosen not to be part of the problem.
The Role of Private Companies in Consumer Protection
Selective acceptance of advertising is just one way in which large corporations make decisions which reflect the values of their leadership or their willingness to bend to public pressure. One high-profile example is K-Mart’s 2001 decision to phase out sales of handgun ammunition in all of its stores nationwide. That decision came in the wake of post-Columbine pressure on the retail chain, including a visit from activist filmmaker Michael Moore and two survivors of the mass shooting. Whether K-Mart leadership was swayed by public opinion or by meeting face-to-face with a teenage boy still carrying around bullets purchased at K-Mart in his body is difficult to say, but the end result is the same: the store made a decision not to participate in a particular supply chain, and options for purchasing handgun ammunition became just a little more limited.
Just last summer, Walmart, Amazon and Sears announced that they would no longer carry Confederate flags, and e-Bay added the Confederate flag and items bearing its image to the auction site’s list of prohibited items. e-Bay, in fact, has a very long list of forbidden categories, some illegal and some simply not in line with what the company wants to be involved with. The company’s explanation for the ban on certain types of memorabilia says simply:
eBay connects a diverse and passionate community of buyers and sellers. We maintain these guidelines to ensure our marketplace offers the widest selection of items possible while promoting trust and respect, as well as adherence to the law.
Corporate Social Responsibility
Naysayers notwithstanding, we generally want the corporations controlling much of the money and power in the U.S. (and the little corner businesses as well) to be socially responsible and factor more than “can I get away with this?” and “will it make me money?” into their decision-making processes. In fact, corporate social responsibility is such a high priority for Millennials that the division between being a responsible member of the community and plain old good business decisions has blurred.
In a 2015 survey by Cone Communications, 85% of Millennials said they were somewhat likely or very likely to switch to a brand associated with a good cause if other factors were relatively equal. 62% even said they’d accept a pay cut in order to work for a socially responsible company. Like it or not, social responsibility is a part of the modern business landscape. Personally, I like it—even when I don’t necessarily agree with the decision a business has made or the cause it supports. I’m not a Millennial, but given a choice between a company that weighs values and what its leadership views as the good of society into its decisions and one that makes a purely clinical financial analysis without regard to social impact, I’ll take the former every time. That’s particularly important when the company has the reach of Facebook or Google.
To my mind, Google has struck the perfect balance with the payday loan ban. The company was willing to sacrifice the ad revenues that come from a lucrative industry in order to avoid promoting something its leadership sees as destructive. In doing so, it leveled the playing field in a way that not many seem to be discussing. Payday lenders haven’t disappeared from natural search, but now they’ll have to compete with non-profits, work opportunities, moneymaking tips and other possible solutions for people searching “need money” and similar terms.
That’s in line not only with the company’s good old “don’t be evil” slogan, but also the role of a giant search engine company in the Internet era: to provide consumers with easy access to a wide range of information based on the questions they ask, not just what the players with the most money want to show them.
Yahoo? Bing? We’re looking at you.