Many Approaches to Tackling Predatory Lending

This week, Google announced that it will no longer allow advertisements for predatory payday loans on its website. Google already bans advertisements for illegal activities or ads that are sexually explicit, but this is the first time the company will ban ads for a broad category of financial products.  The ban will take effect in mid-July and will prohibit advertisements for payday loans that are due within 60 days of being issued and have an APR of 36% or higher.

This ban is an important step in helping protect millions of consumers from entering a harmful debt trap. Nearly three million people obtain payday loans online each year, and according to a report by the Pew Charitable Trust, fees for payday loans online can be nearly double those purchased at storefronts. 28 states allow payday lenders to issue loans with an APR as high as 391% or higher.

Ultimately, it will be up to the states to pass strong legislation to regulate payday lending to ensure that vulnerable lenders are not trapped in an endless cycle of debt. The average person who has payday loans is in debt during five to seven months of every year. The Consumer Financial Protection Bureau (CFPB) is about to propose a rule that would require lenders to consider the customer’s “ability to pay” before issuing the loan, but only states can place caps on the amount of interest that can be charged for this kind of loan.

The Jewish tradition teaches that a person who provides a loan with substantial interest violates two biblical mandates: the mandate of “not charging interest” and the mandate of “not putting a stumbling block before the blind” (Bava Metzia 5:10). Those who profit on predatory lending take advantage of vulnerable people and hurt their credit and wellbeing making it harder for them to support themselves in the future. Judaism urges us to provide fair loans as a means of tzedakah, to lift up an individual, not to profit off of them. Companies like Google can play an important role in helping protect consumers from financial products that provide fast cash in the short term but lead to long-term trouble.

Visit the RAC’s economic justice page to stay up to date on our efforts to end predatory lending. We will also put more information there on how you can support the CFPB’s payday lending rule when it is released.