Google’s ban on payday loan ads has made the loans more expensive
The Internet gatekeeper's attempt at global protection has driven up the cost of short-term loans in Australia.
Google's recent ban on payday loan ads has seen a shift in the way Australian short-term lenders are structuring their terms, making the loans more expensive. Announced in May, the ban pertained to ads for payday loans and some related products where repayment is due within 60 days of the date of issue. This was a globally-enacted policy, and in the US, ads were also banned for loans with an annual percentage rate (APR) of 36% or higher.
In the three months since the announcement, there has been a growing trend in providers of small amount credit contracts (SACCs) to change their product so they are still able to advertise. Specifically, they have changed the minimum repayment terms from 16 days, which is the ASIC-regulated minimum, to 61 days. Lenders that have increased their loan terms include:
|Lender||Original minimum loan term||New minimum loan term|
|Credit24||1 month||3 months|
|Ferratum||16 days||62 days|
|enably||16 days||61 days|
|Sunshine Loans||16 days||63 days|
|Nimble||16 days||62 days|
The cost of "doing the right thing"
While Google's purported its recent ban to be in line with its company motto, "do the right thing" (changed in 2015 from "don't be evil"), a global ban on a product that is regulated at a domestic level is likely to have inconsistent consequences. In Australia, SACCs ("payday loans") are heavily regulated by ASIC and the fee caps make them more affordable than they are in the US, where laws differ by state.
Using the example of a $1,000 loan, this is how much more expensive it is to borrow from lenders that have increased their minimum loan terms to 61 days following Google's ad ban.
- Original loan cost of a 30-day $1,000 loan: $1,000 + 20% establishment fee ($200) + 4% monthly fee = $1,240
- New loan cost of a 61-day $1,000 loan: $1,000 + 20% establishment fee ($200) + 4% monthly fee + 4% monthly fee + 4% monthly fee = $1,320
In this example, the new loan terms have caused the loan costs to increase $80 while sticking to the minimum repayment terms. Because the loan term is technically over three months (if it was under 60 days it would be two months) borrowers will be charged three monthly fees. For larger loan amount the cost will be much higher.
Google's blog post which announced the ban said the change was "designed to protect our users from deceptive or harmful financial products". Some user comments on Google's blog referenced literature outlining the benefits of payday loans in regards to financial inclusion and the ways loans are used differently in other countries, such as Kenya.
Earlier in 2016, Google Ventures had also invested in LendUp, a US company offering short-term loans with APRs of more than 250%.
While the ban was an attempt to protect consumers, when domestic policy has been responsive in a specific area, especially one as important as financial products, it raises the question as to whether a multinational technology company should introduce a policy to disrupt that.