Google Play is banning digital lenders whose products have APRs of 36% or higher, per a Wall Street Journal report Sunday.
While the move may be seen as pro-consumer, it’s a sign lenders have more than just regulatory compliance to consider in the evolution of their product strategies.
According to the report, the ban affects companies including CURO Financial Technology and Enova International, both of which have subsidiaries that offer digital payday loans. Reminiscent of the weight Amazon has over its sellers, it’s an indication that marketplaces can effectively dictate the terms under which participants operate.
“In general, a business should be able to choose who they do business with, but if it’s the platform that makes the market, we get concerned about that,” said Julie Hill, a financial institutions regulation professor at the University of Alabama School of Law.
According to Google, apps that offer personal loans which require repayment in full in 60 days or less from the date the loan is issued — a category which Google calls “short-term personal loans” — are banned, along with loans which have APRs higher than 36%. The average interest rates on payday loans is 391%, according to InCharge, a debt solutions nonprofit.
Mary Jackson, CEO of the Online Lenders Alliance, told Bank Innovation that Google’s new policies create arbitrary standards against lawful companies. “By banning legal products from legitimate lenders that are licensed and regulated by state and sovereign nation authorities, Google is shutting off credit access for consumers in need,” she said in an email.
Google’s requirements create a strict cutoff for some startups that promote financial inclusion, including some whose loan APRs come close to the 36% mark. LendingPoint, for example, has a maximum APR of 35.99%, as does Upstart.
Leslie Parrish, a senior analyst with Aite Group, said Google has long blocked payday lenders from advertising their products on its platform, and the new restrictions are a step toward creating a more consistent stance. However, she noted that customers interested in these products will simply look for other ways to find them.
Payday loans often attract customers who are in dire financial straits, and target customers won’t hesitate to go to storefronts or other online platforms to access them. “Even if one channel is cut off, if someone wants to find this type of credit badly enough, they likely could [find them] through other channels or through their browsers,” said Parrish. “I don’t think it completely cuts [payday lenders] off from a digital channel.”
Bank Innovation Build, on Nov. 6-7 in Atlanta, helps attendees understand how to “do” innovation better. It is designed to offer best practices, to guide the innovation professional to better results. Register here.