Has Google killed off payday loans?

Internet giant bans high-interest short-term lenders from touting their wares online

(Image credit: Leon Neal/Getty Images)

Google may have killed off a payday loan sector that is already reeling from years of regulatory clampdowns.

In a blog posted yesterday, David Graff, the director of global product policy, announced the internet giant will ban adverts featuring high-interest short-term lenders from July.

The move was in response to research that showed "these loans can result in unaffordable payment and high default rates" for consumers, he added.

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The ban applies to ads for "loans where repayment is due within 60 days of the date of issue". In the US, it will also cover any other product with an annual interest rate in excess of 36 per cent. Payday lenders will not be censored from general search results, however.

Google's ban potentially represents an existential crisis for the lenders. The Financial Times notes the search engine accounts for fully one-third of the $159bn (£109bn) of online advertising spend around the world each year.

"Many payday lenders rely on internet searches to generate customers," says the BBC. "It is possible Google's move could have more impact on curbing the industry than government regulation."

That is not to say clampdowns of recent years have been ineffective. After the latest overhaul of lending rules in the UK last year, which capped the daily interest rate at 0.8 per cent and total costs at 100 per cent of the amount borrowed, the number of loans issued fell by more than two-thirds. It is thought the sector, which once boasted 400 participants, will be reduced to a handful of lenders.

Market leader Wonga has already been forced to switch its focus to longer-term loans repayable over three months - and penalties for past practice doubled its losses last year. The second largest lender in the market, Dollar Financial, which owns the Money Shop among other brands, was fined £15m in October.

Lenders' lobby groups were highly critical of Google's move.

"It's disappointing that a site created to help give users full access to information is making arbitrary choices on the advertisements users are allowed to see from legal businesses," said Lisa McGreevy, president of the Online Lenders Association.

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