Google has just announced that it will be banning advertisements for payday loans from its website beginning July 13, as the company continues to weed out advertisements which mislead consumers.
Then, payday lenders, which are companies that provide immediate cash loans but at high interest rates, will no longer be allowed to post advertisements onto Google's system. All advertisements that require customers to pay back loans within 60 days of issuance will be banned globally, and advertisements for loans with an annual percentage rate (APR) of 36 percent or more will be banned in the United States.
Why is Google so adamant about protecting consumers from payday loans though? Are they really that bad?
Payday loans are defined as short-term loans, usually for amounts of $500 or less, which are due to be paid back on the borrower's next payday. Upon taking out a payday loan, borrowers provide lenders with access to their checking accounts or write them checks for the full payable amount, postdated to when the loan is due to be paid back.
Well, that is not so bad on the surface, especially for customers that are in dire need of extra cash for whatever purpose. They are convenient loans to take out as processing usually requires only a few clicks or a phone call, with the money made available to the borrower in as fast as a few minutes. Payday loans are also very simple to understand, as borrowers are given the only information that they would need: the amount they will receive, the amount that they need to pay back, and when they have to do so. Lastly, such loans are open to customers with bad credit history, who will find it difficult to procure loans from traditional banks.
However, payday loans have a darker side to them, as they look to take advantage of the immense need of customers.
The finance charge placed upon a payday loan ranges from $10 to $30 per $100 borrowed. A typical payday loan, which would be paid back in two weeks, comes with a $15 charge per $100 borrowed. The cost of the loan in this example is equivalent to an APR of almost 400 percent, which is absurdly much higher compared to the APR on credit cards which only ranges from 12 percent to 30 percent.
Payday loan lenders, to provide the convenience of quick cash outs, are also prone to not properly checking if borrowers are capable of paying back the money that they receive. As such, borrowers can find themselves in even deeper debt as time goes on, relying on taking out payday loan after payday loan leaving them in huge interest payments each time.
Lastly, there have also been reports on payday loan lenders implementing aggressive collection practices, including threats of excessive collection charges and persistent phone calls, while refusing to accept any repayment plans being offered.
Google has taken the action of banning payday loan advertisements, as they often target students, the elderly, and customers who are in financial trouble, with promises of quick cash at supposedly easy and cheap repayment terms. With the true nature of payday loans revealed, Google is doing a good service to its users by taking out payday loans from its systems.
