Search engine juggernaut Google announced this week that it would prohibit online advertisements from payday loan businesses that offer usurous interest rates and require repayment within 60 days. Payday loans would join the same prohibitive categories of tobacco, weapons, drugs and other “dangerous products.”
This generated a lot of positive publicity because the tech titan, saying the industry was “harmful” and “deceptive,” was foregoing tens of millions of dollars in ad revenues.
But is this the end of the story? Not really.
According to a new report from the Wall Street Journal, GV, the venture-capital investment group of Google’s parent company, Alphabet, is an investor in one online payday loan lender. Reportedly, GV has backed LendUp since 2012 and has offered capital for each equity round LendUp has held for the last few years.
LendUp is described as a payday loan alternative that offers up to $250 for 30 days. An “instant decision” is made and “good credit is not required.” Interestingly enough, LendUp charges customers up to 400 percent APR, which some will condemn as “predatory.” But the company says it provides a service for those who need bad credit loans in between their paychecks.
The online lender is one of the most popular startups in the financial technology (FinTech) sector. It has raised about $150 million in debt and equity so far this year, and with GV a major backer of the payday loan firm, LendUp will likely remain generating funds.
LendUp has been operating online and has received glowing reviews. With that being said, many have criticized LendUp’s various tactics to determine creditworthiness, such as perusing through a customer’s social media.
Ultimately, however, LendUp may be affected by Google’s new policy, and the company has acknowledged it in an interview with the newspaper.
“We do worry about how this will play out and think it paints with too broad a brush,” LendUp CEO Sasha Orloff told the Wall Street Journal. He added that the startup may have a more difficult time marketing its payday loan products because of the changes to AdWords.
After Google made the announcement, Orloff wrote a blog post defending Google.
“Even though we were surprised by the announcement and would take a different approach, LendUp and Google agree on a fundamental fact: The current payday-loan industry is bad for Americans,” Orloff opined. “Google is applying pressure from the outside, and we applaud them. LendUp is trying to change the system from the inside.”
Other payday loan industry representatives have referred to the move from Google as discriminatory. But Google thinks this is nonsense.
David Graf, Google’s director of global product policy, cited Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, who averred that payday loan stores have often “trapped” impoverished consumers so to combat any allegations of discrimination would be difficult to achieve.
Proponents argue that payday loans are necessary for consumers who do not have access to conventional forms of credit and need to cover rent, utilities or car repairs. Critics say that payday loans hurt the impecunious by placing them in vicious cycles of debt.
Eighteen states in the U.S. have banned payday loans, while federal officials are trying to create a nationwide regulatory framework. Some are concerned that a growing number of payday loan operators are heading online, and this could make it difficult to regulate these businesses.