A few days ago, Google took a principled stance, announcing it would no longer allow so-called “payday lenders” to advertise using its AdWords platform, cutting off online lenders with interest rates higher than 36% from paying for prime real estate on search results pages.
Since last week, Google has met with accusations of hypocrisy over this payday lending decision, as the online search giant allows other “unsavory” retailers to use its AdWords and AdSense platforms, including a convicted terrorist and terror financier known as the “Prince of Jihad.”
And now Wednesday, the Wall Street Journal revealed that Google‘s parent company Alphabet is an investor in an allegedly shady online lender called LendUp that bears a striking resemblance to the payday lenders Google is ousting from it’s paid search results on the theory that they are dangerous for low-income and desperate consumers.
Alphabet and Google maintain that LendUp is an “alternative” to traditional payday lending “because it doesn’t charge early-payment penalties or roll over loans when borrowers don’t pay it back.” But the Silicon Valley startup has similar sky-high interest rates to other short term online lenders, between 395% and 600% depending on the loan. That’s well above the 36% ceiling that Google will require for its advertisers. And it was created to serve the same market, the 28% or so of American households that LendUp terms “unbanked” – those who have only limited access to traditional credit.
LendUp says that some – but not all – of its products will be affected by Google’s ban, but that they’re working with Google to “understand” the advertising restrictions.
Google has not indicated whether it would favor LendUp over other online lenders (it says it doesn’t coordinate with Google Ventures investments), but LendUp’s CEO Sasha Orloff says the one-two punch of Google and LendUp makes sense, and noted to the WSJ that Google Venture’s investment was an effort to do away with traditional payday lending. He praised LendUp’s ability to attack payday lenders “from the inside” while Google handicapped them “from the outside.”
That Google and LendUp see each other as allies should worry other online lenders, since it could mean that Google intends its advertising restrictions to not only impact consumer choice, but to steer potential borrowers to “modern” online lenders rather than traditional payday lenders.
