WashU Expert: Google payday loan ad ban highlights need for affordable loans

Google announced this week it will ban advertisements for payday loans, citing the fact that high interest rates on such loans are a hardship for consumers.

Google’s decision should be commended, but also highlights the need that many lower-income consumers have for affordable short-term loan options, says an expert on social and economic development at Washington University in St. Louis.

Grinstein-Weiss
Grinstein-Weiss

“I think it is a great move by Google that is significant both symbolically and, more importantly, practically in terms of how it will impact the market,” said Michal Grinstein-Weiss, professor at the Brown School, director of the Envolve Center for Health Behavior Change and associate director of the Center for Social Development.

“Payday loans can be a major barrier to families getting a grip on their finances because of the extraordinary interest rates and fees often associated with this type of lending,” she said.

The Google ban begins July 13 and applies to loans for which repayment was due in 60 days, and for loans that carry an annual percentage rate of 36 percent or higher.

“Among our recent survey results from the Refund to Savings project of low- and moderate-income tax filers, we found that people who used alternative financial services such as payday loans were more likely to overdraft from their bank accounts, more likely to have their expenses exceed their income, and, as expected, they were less likely to be able to come up with $2,000 in an emergency,” Grinstein-Weiss said.

People who used alternative financial services also experienced a variety of material hardships more frequently than their low- and moderate-income peers — they experienced more food insecurity, they skipped necessary medical care, and they were more likely to have skipped a bill in the last six months, she said.

“In 2014, the Center for Responsible Lending estimated that the typical payday loan carries an interest rate between 391 and 521 percent, and too often lower-income households cannot pay that loan back at just one time point and instead they end up rolling over their loans in a cycle of borrowing and paying the lending intuition,” Grinstein-Weiss said.

“I am hopeful that the new Consumer Financial Protection Bureau regulations on short-term lending that should be coming out soon will provide the necessary guidelines for the market to progress and to provide affordable short-term lending options that lower-income households will be able to utilize when needed without becoming buried in high interest rates and fees,” she said.

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