Google Joins The Ranks Of The Condescending

Payday lenders provide a valuable service, but government regulators and self-styled consumer activists are determined to run them out of business. Google is now on-board with the crusade. The world’s most successful search engine has decided to ban all payday loan ads.

According to the Washington Post, the company bowed “to concerns by advocates who say the lending practice exploits the poor and vulnerable by offering them immediate cash that must be paid back under sky-high interest rates.”

I’ve written extensively about why payday lenders are not evil, and why these firms are not exploiting people. I’ll go through some of the reasoning again, but first I have to say this: As a private company, Google should have the right to implement whatever payday loan ad policies it chooses.

It’s tempting to say Google’s policy is misguided, but it may actually be in the best interest of their shareholders. After all, in 2012 and 2013 Google changed its policies and pulled at least one company’s ads because of “increasing government pressure.” Since then, its stock price has basically doubled. So kowtowing to the powers-that-be in Washington may be the easiest path to success.

Or perhaps management simply feels that the best way to avoid extensive government regulation is to rid themselves of these ads. Either way, I’ll bet they have to make similar calls in the future: professional advocates will not be satisfied for long with an ad ban on just one “objectionable” service.

Last November, Ed Mierzwinski, a director at consumer-advocacy group U.S. PIRG, told the Atlantic:

I find the entire online ecosystem that is designed to track consumers and then to place them in boxes...too opaque and too under-regulated. So I think the entire online marketing, and advertising, and lead-generation system is a consumer protection problem of both deception, and unfairness, and maybe abuse as well.

Many of these groups take the position that deception, unfairness, and abuse are natural results of the free-enterprise system. In their view, these tragic outcomes can only be fixed by government regulation. The folks running the Consumer Financial Protection Bureau (CFPB) seem to agree, so it’s hard to blame Google for trying to placate these noisy protestors.

One erroneous argument anti-lender activists rely on is that payday (and small consumer) lenders charge exorbitant interest rates. The supposed proof is that the annual percentage rate (APR) on these loans can rise to more than 400 percent.

As I’ve pointed out on multiple occasions, though, the APR concept does not apply to these short-term loans because interest isn’t compounded. Payday lenders generally don’t charge anyone an APR, even though they’re often required to post an APR, so they’re not really charging 400+ percent interest. (It really wouldn’t be a problem if they were, but I’ll come back to that briefly.)

My Cato Institute colleague Thaya Brook Knight recently penned her own explanation of why these outrageous APR claims are dead wrong. Knight explains:



Putting aside this conceptual issue, there are serious problems with instituting price caps and other regulations simply because someone thinks a business is charging customers too much.

But that’s exactly what’s going on here, and many of the people pushing for these new rules and regulations on the lending industry would be miffed if it were happening to them.

Supposedly, it’s outrageous that someone pays $30 to borrow $100 so they can fix their washing machine or their car. And it requires extensive government regulation.

It’s perfectly fine, though, for someone to pay $10 for soy-free-cage-free eggs, $225 for an artsy-shaving kit, $24 for soap, $4 for artisanal toast, $590 for a bottle of whiskey, $1,000 for an Italian suit, $90 for “distressed” skinny jeans, $195 for an evening (silk) skinny tie, $695 for leather shoes, $1,000 for an ice cream sundae, or $85 for a men’s haircut.

None of these cases points to a market failure. Businesses are providing products at prices certain people are willing and able to pay, regardless of how many other people are offended by the prices.

Offended parties should just move on and find another option. There’s no need to accuse clothing makers of preying on people with “slick” advertising that forces them to buy jeans full of holes. The only advantage of raising a ruckus is that it may give the accuser a feeling of moral superiority.

We don’t need a Consumer Clothing Protection Bureau to mandate that denim pants can no longer be sold if they have holes larger than 1/2 centimeter in diameter. Fewer customers would get the jeans they need and fewer people would be employed.

It’s really no different in the consumer lending business. Slapping oppressive regulations on all consumer lenders will result in fewer people having access to the credit they need and more people out of a job.

Instead of complaining that “poor” people are getting “trapped,” and being forced to pay “frightening levels of interest,” those so aggrieved should pool their resources and start their own loan companies. Certainly they seem to have lots of Hollywood money on their side.

If the rates currently being charged are truly exorbitant, they should have no problem charging less. Theoretically, they’ll make lots of money, which they can then give away to those more in need than their customers.

Also on Forbes:

