Today Google announced that it will soon stop carrying ads from payday lenders. That sucks. Here's why:
In the past, Google has mostly restricted itself to eliminating ads that were actively fraudulent or illegal (ads for prescription drugs without a prescription, counterfeiting, phishing) or ads that made for a bad user experience (auto-downloads, ads that trick you into clicking).
But a special announcement that Google will be banning ads for short-term high-interest loans (and other related products) because "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" suggests that the company is stepping into new nannyish territory.
Now's the part where we all chime in together for the obligatory yet deadly serious libertarian chorus: Google is a private company and can do whatever the heck it wants here. If the honchos in Mountain View want to ban ads from anyone who uses Comic Sans, they can (and perhaps already do). If they want ban all ads originating from Washington, D.C., they can (and perhaps should). If they want to ban ads featuring puppies playing with babies, they can (and probably shouldn't). There is no such thing as the right to have your ad carried by Google, and nor should there be.
But Google has erred in making an exception to their general policies by banning ads because they think the services offered are yucky—which is what this policy comes down to.
For the most part, Google isn't in the business of stopping retailers from advertising stuff that's broadly legal but not a very good idea for some individuals to buy—bulk orders of Mountain Dew and silver baby spoons from Tiffany's remain fully legit in Google's eyes. (Google did block 780 million ads last year, and their policies are understandably lengthy and complex.) But credit card ads abound, not to mention ads for student loans. So why suddenly target payday lending?
In general, entities that provide goods and services to poor people are easy for rich people to look down on or to condemn as exploitative. You can see this everywhere, from restrictions on large cheap sodas to bans on restaurants selling convenient, caloric fast food in low-income neighborhoods to cops who choke people to death for selling single cigarettes to customers who can't afford a whole pack. Is it a good idea to smoke a loosie after finishing your Whopper and Big Gulp? Nah, probably not. But it's no worse than pulling a Nat Sherman from a fresh pack after you finish your Ruth's Chris ribeye and chocolate souffle, yet nobody's holding hearings or issuing press releases about that.
Banning payday loans (or banning advertising for them) doesn't make the demand for payday loans go away. It simply channels that demand to less savory corners of the real and digital worlds. Bans also make it harder for people with jobs and bank accounts (both of which you must have to get a payday loan) to get information about what might be the best of a bad set of options to get some quick cash.
Here's a case study from another industry: When classified sites like Craigslist started getting legal heat for selling ads associated with sex work and backed off the practice, demand and supply for the world's oldest profession remained intact. But at least some of the sex workers who had previously been able to advertise for and vet clients from the comfort of their living room sofa were pushed into street solicitation, with its attendant risks of violence from clients and police.
The same thing is already happening payday lending: As states dropped ceilings on interest rates and limited the physical locations where lenders can do business, customers fled to the internet where rates are typically higher, not lower, and it can be harder for a non-savvy customer to distinguish between a legit operation and a fly-by-night shop. Industry studies have found that when loans aren't available, the remaining choices are even less attractive, including having utilities cut (and then expensively reinstated in the next pay period), account overdrafts which result in stiff fees, or borrowing money from guys who are more like to ruin your kneecaps than your credit.
By creating a special category for payday lenders, the guys and gals at Google are following the cues of lawmakers and regulators, who have been after the industry for a long time. Dozen of states have made payday lending outright illegal or capped rates, and there are already federal restrictions in place about making short-term high-interest loans to servicemembers and public sector pensioners.
But Google's move most resembles the maneuver by the Justice Department and the Federal Deposit Insurance Corporation (FDIC) in 2014. A December report that year from the House Committee on Oversight and Government Reform found that the feds were using a secretive anti-fraud initiative to smack down payday lenders: Operation Choke Point. It was supposed to be targeted at reducing banking fraud. But internal documents showed regulators taking advantage of a lack of due process to squelch a variety of legitimate transactions by legal but potentially unsavory businesses.
Here's the head of the FDIC in Atlanta being a little too candid in an email unearthed by the investigation: "I literally can not stand payday lending. They are abusive, fundamentally wrong, hurt people, and do not in any way deserve to be associated with banking."
You can imagine this same email circulating at Google HQ. It's compelling and emotional and the author certainly means well. Ad bans won't solve the problem and they won't make the lives of would-be payday loan customers better. They're a bad idea. But if you're looking for a silver lining, at least no one goes to jail or has their bank accounts seized when Google decides they find an entire industry unsavory. You can't say the same for the government.