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Google Adds Payday Loans to Dangerous Products List

Being socially responsible is a popular way for corporate houses to impress customers and improve revenues, and it appears that Alphabet Inc. GOOGL has again found a way to do so.

The company has decided to put a ban on payday loan ads. Payday loans now join guns, drugs, counterfeit products and explosives in what Google calls the list of “Dangerous Products.”

The company announced on Wednesday that it will ban all ads for payday loans and related products on its website.

Search words like “loans” or “places to get money” will no longer draw up ads from payday lenders in the advertising section of the world’s most visited website although they may show up as a part of search results. The ban goes in to effect from Jun 13.

Payday loans are small, short-term loans carrying extremely high interest rates and payable on a person’s next payday. Upon failure to repay, the debt burden multiplies owing to the high interest rate. They typically include loans due within 60 days or with an interest rate of 36% or higher.

Google's product policy director David Graff, wrote in a blog post, "Research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that.”

"This change is designed to protect our users from deceptive or harmful financial products and will not affect companies offering loans such as mortgages, car loans, student loans, commercial loans, revolving lines of credit," Graff said.

Analysts believe that by preventing people from taking out harmful loans, Google is trying to make its ads more trustworthy and create a positive impression. The move is surely a big hit to an industry that makes most of its business through online lending.

Obviously there were reactions from lending groups.

The Online Lenders Association called Google’s move “disappointing”. The group's president, Lisa McGreevy commented, "It's disappointing that a site created to help give users full access to information is making arbitrary choices on the advertisements users are allowed to see from legal businesses."

The Community Financial Services Association of America claimed that it works to preserve “access to short-term credit for millions of Americans,” and condemned the move, calling it “discriminatory and a form of censorship.”

The association’s spokeswoman Amy Cantu said in an emailed statement, “The Internet is meant to express the free flow of ideas and enhance commerce. Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors.” "This is unfair towards those that are legal, licensed lenders and uphold best business practices," she added.

Facebook, Inc. FB has already banned advertisements of payday loans. However, Microsoft Corp. MSFT and Yahoo! Inc. YHOO still allow them.

State legislature has long been trying to curb payday lending and decisions like these by tech giants Google and Facebook are believed to have a supportive effect.

Lisa Donner, executive director of Americans for Financial Reform, said, “Google’s important new standards will stop abusive lenders from using their far reaching platform to market dangerous debt-trap products that do serious and lasting harm to consumers."

At present, Google has a Zacks Rank #3 (Hold).

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