jump to navigation

payday loans: csr and regulation May 13, 2016

Posted by Bradley in : consumers , trackback

Google’s new policy on payday loan ads which will be banned defines the relevant loans as follows:

We will no longer allow ads for loans where repayment is due within 60 days of the date of issue. In the U.S., we are also banning ads for loans with an APR of 36% or higher. When reviewing our policies, 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.

The policy doesn’t just seem to apply to the worst sort of payday loans. The NY Department of Financial Services says that payday loans are typically repayable within 2 weeks and can carry an interest rate of 400%. The Google announcement doesn’t say how Google will think about issues such as roll-over of loans (where loans originally repayable within a two week period end up being outstanding for longer because they are rolled over into new loans) or high fees which might not be characterized as part of an APR. A study by the FCA in the UK published in 2014 found that payday lending consumers were frequently surprised by roll-over or extension of the loans and the fact that this would raise the cost of the loans.

Reactions (NYT) focus on whether companies like Google should engage in this sort of censorship. One article (by Danny Yadron and Maria L La Ganga) states:

What’s different now is that an increasingly small number of technology firms control what an ever expanding number of people see online. And they’re willing to go beyond what is circumscribed in law to make their own decisions – maybe shaping society in areas where governments won’t act.

This article, and the Google announcement, seem to suggest that what Google is doing here is engaging in corporate social responsibility (CSR). But in fact payday lending is an area where Governments are becoming more active: payday lending is already illegal in a number of states (such as New York, although the rules in different states do vary) and it has been targeted by the CFPB: just this week the CFPB announced that it had taken Action Against Check Cashing and Payday Lending Company for Tricking and Trapping Consumers and last month the CFPB published a report which shows that online payday lending customers are at risk of being subject to overdraft and non-sufficient funds charges imposed by their banks and even of having their checking accounts closed. New rules on payday lending are expected soon. And other jurisdictions, such as the UK and Australia, regulate payday lending. So it’s really about getting ahead of (or alongside) regulation rather than CSR, isn’t it?

Comments»

no comments yet - be the first?