Wednesday, 1 June 2016

Is Google right to single out the payday lending industry with its adword ban?

Google famously included ‘do no evil’ in its original mission statement published in 2004, a bold claim that has caused continuous debate. In 2015, it decided to drop the motto from its code of conduct in favour of ‘do the right thing.’ While this new wording is a little more open to interpretation, it shows that there’s still a place for sound business ethics in the increasingly powerful, more profitable Google.

Recently, Google has turned its attention to payday loan providers, announcing that, from 13 July 2016, there will be a complete ban on all Google ads promoting loans that have to be repaid within 60 days. In the US, the ban extends to loans with an APR of 36% or higher.

The company’s blog states that this policy is “designed to protect our users from deceptive or harmful financial products.” Media stories of irresponsible lending practices and heavy-handed debt collection procedures have dominated the industry headlines in recent years, so it’s probably not that much of a surprise that Google has taken this stance. But are these headlines really reflective of what’s really happening in the payday lending industry today?

Some stringent regulations, such as the Financial Conduct Authority’s cap on interest charges and fees, have been introduced over the last few years in order to make the industry more transparent, fair and affordable. Indeed, legitimate lenders offering short term loans today have had to jump through a considerable number of regulatory hoops. So why isn’t Google satisfied that these firms are operating responsibly, when regulators are?

Pressure from regulators isn’t the only factor that has re-shaped the short term loan market. Lenders themselves have been quick to recognise that, in order to have long-term success, they can’t risk lending to customers who can’t repay their debts. Credit risk analytics and due diligence procedures are vastly improved, as is customer service. Take for example alternative lender Oakam, which recently picked up an industry award in recognition of its customer-centric service offering.

But there’s a bigger and more important point to make: payday lenders provide a much needed line of credit to consumers who are often overlooked by traditional lenders and the banks. Today it’s estimated that 2.5 billion people don’t have a credit rating. This means that there are 2.5 billion people who can’t turn to their bank for a loan or who can’t apply for a credit card. These aren’t always people who are struggling to make ends meet or who have difficulty managing their money. They might just need quick access to money to fund an unexpected expense and don’t have time to wait for a bank to assess their application. They might be someone moving country for work, who only has a credit history in their place of birth. For these people, short term loans are a practical, quick and clearly-communicated way of accessing much needed credit and not the ‘harmful or deceptive financial products’ described in Google’s blog.

In their short history, alternative lenders have been smart enough to spot and plug a gap in the lending market, adaptable enough to meet stringent new regulatory requirements and savvy enough to develop more customer-centric service portfolios.

Google’s ad ban is an inconvenience which will likely spark changes in the market. Expect larger brands to snap up smaller companies struggling to gain a foothold in the market, together with increased spending on alternative digital marketing tools, such as SEO and lead generators. But it’s unlikely that the market will disappear. There are just too many consumers who have learnt to rely on and value these services.

Daniel O’Boyle

No comments:

Post a Comment