Payday lenders offer ultra-high interest rate, short term loans with a reputation for getting people into hellish financial situations. Google recently announced it would no longer offer advertising for payday lenders with terms of 60 days or less, or with annual interest rates of 36 percent or more.
Why would Google ban these lenders from advertising? Google could see payday loans as harmful to consumers. Past decisions on advertising bans involve products that facilitate drug use, tobacco, and businesses that offer academic cheating. The search giant also bans ads that promote alcohol use while driving or operating machinery.
We can describe one harmful aspect of payday lenders that will make Google’s decision make more sense (although there are many harmful aspects to payday loans).
Why Are Businesses Cracking Down on Payday Loans?
Payday loans can cause debts to snowball for consumers. This can happen for several reasons, but we will use overdraft fees as an example.
The Consumer Financial Protection Bureau (CFPB) has found payday lenders routinely take money straight from the bank accounts of past due borrowers. When people do not have the funds to cover automatic debits from payday lenders, they collect overdraft fees. Overdraft fees can be charged for each transaction (sometimes these fees are more than $30 per transaction). CFPB numbers show half of online payday loan borrowers accumulate $185 in overdraft fees.
Overdraft fees are separate from what is already owed to payday lenders. Borrowers can find themselves in a situation where they owe money for other bills, ballooning payday loan balances and overdraft charges.
Google’s advertising decisions often reflect its views on certain business practices. It should also be noted that Facebook has banned advertising for payday lenders.
The Kansas City bankruptcy attorneys at The Sader Law Firm offer regular updates on consumer and bankruptcy scams.