Google’s Pound of Flesh
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We all know Google’s corporate philosophy is “don’t be evil, ” but what does that really mean? Is it okay, for example, to be just a little evil, rather than bad to the bone? Or is it okay to enable evil in others? The latter case certainly represents the minimum coefficient of evil I see operating at the Googleplex now that I know the search giant is involved with the Online Lenders Alliance. You know, payday loans.
Payday loans are cash advances provided to consumers until their next pay cycle secured by post-dated checks with most advances not exceeding $500. These loans are for people who can’t find money any other way to buy milk for their kids. Very few get payday loans to buy Springsteen tickets. And with interest rates that often exceed 400 percent annually, you can see why I might think payday lenders are evil.
Get behind on a payday loan and most borrowers never catch-up.
The Online Lenders Alliance is a trade group comprised mainly of payday lenders, though it also involves call centers, collection agencies (natch), lead-generation companies, credit rating agencies (though not the ones you have heard of)… and Google, which had a booth last month at the OLA convention in Chicago.
The idea of Google having a trade show booth at all surprises me. Remember this is no-touch, algorithmically-driven Google, which generally doesn’t like to get involved in public events involving, well, people.
But Google was involved with the OLA and I have to wonder why? Were they there just to sell advertising? Certainly payday lenders have migrated en masse to the Internet and do a ton of business through Google ads. But that wouldn’t necessarily lead inevitably to a trade show booth. Auto parts vendors sell tons through Google, too, but I don’t see Google on the exhibitor list at the big Specialty Equipment Manufacturers Show (SEMA) in Las Vegas.
Maybe Google was there as an aggregator and seller (or even buyer) of consumer data. This type of Internet lead is an underwriter’s dream because once consumers develop an “I no longer care” attitude they supply more private data (including Social Security numbers) as well as more general data — up to 80 fields worth! Google might want to buy that sort of information to add to what they already know about our searching and other online habits.
Whatever Google’s motivation, it is pretty clear the company views payday loans as a special case. When I did a Google web search on the term “payday loans” for example, the search results placed the uniformly negative news items near the bottom of the results, below the fold as we used to say in the newspaper business. Similar web searches on the terms “mortgage loan” and “auto loan” put the news in each case near the top of the results, significantly above the fold where it was more likely to be seen.
Why would Google do that? Payday loans are despised by consumer advocacy groups, governments, and my Mom, alike. Nobody likes payday loans, except of course the companies that make billions providing and servicing them.
There are lots of big companies that benefit from payday loans. If you wonder where payday lenders get their money, for example, it is from the same banks where we have our checking accounts. The biggest backer of payday lenders is reportedly Wells Fargo.
But enough of this speculation! The best way to find out why Google was exhibiting at the OLA show would be to simply ask them, which one of my readers did as favor to all of us. And the answer he got from folks manning the Google booth was surprising — or at least it surprised me. He was told “the (payday loan) industry is ripe with inefficiencies, shady practices, and shady people. Coupled with overwhelming consumer demand, Google believes it can right these inefficiencies, provide better transparency, and ally with consumer protection agencies. ”
If I heard correctly, that means Google is thinking of entering the payday loan business.
I can’t tell, is that evil or not?
Like a lot of big tech companies, Google is sitting on a ton of cash — $30 billion — that is just dragging-down earnings because interest rates for non-payday-type investments are close to zero. That’s 10 times the total float of the entire payday loan industry! If Google took even half that money and started lending it online, it would drive payday interest rates sharply down to, say, 20 percent — still an order of magnitude better than an Apple earns on its stash of cash.
Earning 20 percent interest on $15 billion would increase Google’s profit by $3 billion per year for an increase of almost 30 percent.
The impact of Google entering the payday loan business would reverberate through the sub-prime lending industry, affecting many other types of loans and credit cards ruthlessly aimed at the the most vulnerable.
Maybe it is not so evil after all, but I’d say the jury is still out on that one.
I have long expected that we’d all be metaphorically signing-over our paychecks to Google. I just didn’t expect we’d be doing it literally, too.
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Google’s entering into payday loan business is certainly a move no one anticipated. It’s not necessarily “evil”, it might change, as you say, other types of loans and credit cards. The tons of money Google is sitting on might prove to help, in a way or another, the people who were already thinking about borrowing money, asking themselves what what type of credit card to apply for , cutting down the interest to 20 percent or less. The only problem is that Google’s reputation might drive others, who weren’t thinking about a loan, to enter in the circle of debt.
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