Why we agree with Google's move to ban payday lenders
May 13th 2016
On Wednesday, Google announced that, from 13 July 2016, it will no longer allow ads for payday loans, which it defines as any loan where the repayment is due within 60 days of the date of issue. In the USA, ads will also be banned if they have an APR of 36% or higher. The stated aim is to place what it sees as predatory lending in the same category as counterfeit merchandise and tobacco, just two of the other products which are termed dangerous and banned by Google. Product policy director David Graff said in his blog post that "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."
As I work for a company that compares loans (using its own comparison platforms), markets its own credit products and also relies on Google for both natural and paid traffic, I am in a good position to comment on how the changes will affect the credit market. Even though, as a company, we believe that consumer choice is very important and we endeavour to compare the widest range of products, much like Google, we decided that short-term lending wasn’t something that we should promote. In its current format, it doesn’t fit comfortably with our mission to build a fairer credit market.
Payday loans a poor choice
Google should be applauded for a brave move which, on the surface, seems to be a step in the right direction. Google clearly agrees with us that payday loans are very rarely the right option for any consumer. The losers will be short-term lenders that are reliant on Google for traffic, and I would expect to see advertising spending shift away from Google to other channels. However, Facebook has already banned payday-loan advertising, and though Yahoo and Bing are yet to follow suit, television advertising options are also likely to be limited in the future.
Valuable search term
The big winners will be brands with a successful SEO strategy. Those ten blue links will suddenly become a lot more valuable as there will be no competition from ads, and because the demand for short-term loans, although lower than 2013 peak levels, is still there. It remains one of the most valuable search terms in the industry and removing ads will do nothing to affect demand. Good for users good for business Following many years of working in the search industry, I have come to the conclusion that when Google makes changes to its services for the good of the user, it hardly ever has a negative impact on revenue. If anything, the impact is more often positive.
I believe that in this instance, Google has done the right thing and should be congratulated. That said, if Google really wants plaudits for championing consumer rights, then it should reconsider its investment (via Google Ventures) in LendUp. LendUp is a short-term lender that offers loans with an APR of up to 557%. They are currently ranking 6th for the search term "payday loans" in the US, so they will be in a highly lucrative position when July's changes come in. When a company can influence the market to the extent that Google can, and in ways that benefit itself, every action should be scrutinised.
Redistribution of wealth
While it might appear that their behaviour is entirely altruistic, it is not. That said, this is not a purely cynical move as I think they will lose some advertising revenue, but it won't be as damaging as it first appears as it will increase the value of one of its investments.