Google to ban ads for payday loans

SAN FRANCISCO — Bowing to growing pressure from consumer groups, Google will no longer accept ads for payday loans, a move that critics hope will create a new industry standard.

"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," Google's product policy director, David Graff, wrote in a blog post.

Google defines payday loans as loans due within 60 days of being issued and in the U.S., loans with an annual interest rate of 36% or higher.

Payday lenders will no longer be able to purchase ads that appear above search results for key terms under Google's AdWords program. But they will still appear in search results.

The change does not rein in companies marketing loans for mortgage, student, car and commercial loans as well as credit card offers.

The ban, which takes effect on July 13, comes ahead of stricter regulations from the Consumer Financial Protection Bureau. Facebook officially banned advertisements for payday loans last August. Before that, the giant social network's policy was to only allow ads from payday lenders with Facebook's permission.

A trade group for payday lenders called Google's new policy "discriminatory and a form of censorship."

“The Internet is meant to express the free flow of ideas and enhance commerce. Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors," Amy Cantu, spokeswoman for the Community Financial Services Association of America, said in an emailed statement. "This is unfair towards those that are legal, licensed lenders and uphold best business practices."

Cantu said the statement also applies to Facebook "and others with these policies."

Critics of payday lenders say they hope Google's new position will significantly undermine opportunistic lenders that hunt for customers on the Internet and disproportionately target communities of color still struggling to recover from the economic downturn.

HIGH FEES

Annual interest rates on these small loans could range from 300% to more than 700%, found a 2014 study from The Pew Charitable Trusts.

Consumers who turn to online lenders for payday loans face hidden risks of costly banking fees and account closures, according to a federal analysis released in April.

Half of the borrowers who got the high-interest loans online later were hit with an average of $185 in bank penalties for overdraft and non-sufficient funds fees when the lenders submitted one or more repayment requests, the Consumer Financial Protection Bureau analysis found.

One third of the borrowers who racked up a bank penalty ultimately faced involuntary account closures, the report also found. Online lenders made repeated debit attempts on borrowers' accounts, running up additional bank fees for the consumers, even though the efforts typically failed to collect payments, according to the analysis.

“Google’s important new standards will stop abusive lenders from using their far reaching platform to market dangerous debt-trap products that do serious and lasting harm to consumers," Lisa Donner, executive director of Americans for Financial Reform, said in a statement.

Microsoft and Yahoo, which run ads from payday lenders, did not respond to requests for comment.