Google’s “do no evil” mantra and the company’s sometimes arbitrary actions have been called into question time and again.
Effective July 13, 2016, Google implemented a new policy that prohibits payday lending companies from advertising on Google AdWords. Any lender offering loans which require repayment within 60 days, or with an APR of 36 percent or more, will no longer be allowed to advertise on Google, a move that will no doubt put many of the smaller payday lenders out of business.
Few would argue that payday lenders are a benevolent group of people, but like them or not, they do operate legally, and this raises a question on how heavy-handed Google should be allowed to be in prohibiting legally operating companies from using what amounts to a monopoly service, without which an otherwise legal business is likely to fail.
The ban, as described in Google’s blog, says it is designed to “protect our users from deceptive or harmful financial products,” but its motives are being questioned since Google itself has gotten into the payday lending act with a major investment in payday lender LendUp. Google participated in LendUp’s $150 million Series B round, calling the company’s vision “game-changing,” only to decide later – possibly under government pressure – to put the smack down on payday lenders, including, presumably, the one that it owns. By Google’s own standards, LendUp would not be permitted to advertise on Google, and theoretically, Google would be required to protect consumers from its own funded companies.
Lendup offers small loans that come due between seven and 30 days from issue, with an initial rate of about 180 percent. But there’s a critical difference, and one that marks a major trend towards offering more favorable terms. Users can work towards rates as low as 29 percent by taking courses and building a reliable credit history. Nonetheless, as noted by the Wall Street Journal, LendUp has terms that are in line with traditional payday lenders, and paid ads for LendUp products will be barred from Google search results. The ban affects paid ads only, not actual search results.
It seems Google isn’t the only one wanting to kill off payday lenders (or in Google’s case, its payday lender competitors). Long before Google invested in payday lending and decided to kill off all other payday lending ads on the search engine, the Department of Justice and the FDIC launched its own campaign, codenamed “Operation Chokepoint,” designed to intimidate banks to stop working with payday lenders, even though the relationships between banks and payday lenders was perfectly legal.
According to the Wall Street Journal, the operation bypassed due process by pressuring the financial industry to cut off legal payday lenders’ access to banking services. In 2015 however, the FDIC changed the tone of its campaign, ending Operation Chokepoint, and instead of requesting that banks cut off services to a category of legal businesses, instead offering more nuanced advice that banks to take a risk-based approach to their relationships.
Also, last month, the Consumer Financial Protection Bureau rolled out new rules to address some of the more odious practices of the short-term lenders. A three month comment period will take place before rules are put into place, and there is even speculation that a new type of short-term loan could replace the high-cost payday loans. The proposed new rule requires lenders to determine whether borrowers are able to afford to pay back their loans, and would end “repeated debit attempts that rack up fees and make it harder for consumers to get out of debt,” according to the CFPB blog.
What Could Replace Payday Loans?
Payday loans is an industry that may be on the way out, regardless of Google’s muscle. The CFPB’s comment period may give rise to some new concepts -- and some of those concepts are already taking shape. Ultimately, it may be the free market, not the government or Google, which puts payday lenders out of business, in much the same way companies like Uber are offering a more efficient alternative to traditional but largely inefficient taxi services.
“The need for small, short term loans is critical to many in today’s economy,” said Aaron Ledbetter founder of LendFu, a peer to peer lending organization that facilitates small loans on affordable terms. “Payday loans have emerged as an imperfect way to address the need that banks refuse to fill. We think there should be another safer and more affordable alternative. And if banks aren’t going to step up, and payday lenders are going to continue their predatory practices, there must be another alternative that fills the need while adhering to more responsible standards.”
Let Loose the Dogs of War
We are seeing only the very beginning of a large battle. Payday lenders have not yet filed suit against Google, Department of Justice, or CFPB, but it’s only a matter of time. Google itself may be feeling the threat of a government lawsuit.
The CFPB only recently filed a lawsuit against a company called T3Leads, which operated as a middleman that connects consumers with lenders, not as a lender itself – a very common type of website – holding them responsible for damages to consumers that may not be getting the best possible loan terms.
Lawsuits against Google often end up on the scrap heap, but one put forth by the government may certainly have a better shot at holding up in court, and it may be only a matter of time before the CFPB decides that the pool of payday lender referral sites is just too big, and too populated with nickel-and-dime operators, and turns its attention to Google’s deep pockets instead.
There is little doubt that payday lenders take advantage of a vulnerable population, and there must be oversight, and quite possibly new regulations on what they can and cannot do. But, the proper way to accomplish that is through legislative action, not by causing one legitimate business to stop delivering legal services to another lawful, though unpopular, industry.
Similar cases have been in the news recently. An Indiana pizza restaurant was caught in controversy after stating they would not cater a gay wedding, and there may be some similarities between questions about what Google can and cannot do, and what the courts have said restaurants can and cannot do. A restaurant – much like Google – is a “public accommodation.” As such, it’s firmly established that restaurants cannot arbitrarily refuse service.
The big question now is whether a public accommodation like the Google search engine, should be allowed to refuse service to legal businesses.