Google has announced it will be banning paid advertisements for Payday Loans and any Loans with an APR of 36% or higher.
With this announcement there has been a lot of discussion from “the insiders” on what will happen once Google removes this advertising channel. I would like to offer the other side view… not the opposing view… just what the insiders I hear are talking about when Google strikes the ability to advertise these loans.
First, just to be clear. Google is not banning anything organic… it just won’t list paid ads. That means when you google “title loans in Los Angeles” for example, you will still see results… local listings will win big and organic websites will see a larger increase in traffic. You just won’t see the ads above and below them. Good news for organic web site owners, bad news for companies who pay Google to get higher placement.
For the most part payday loan companies and title loan companies don’t think of themselves in the same financial space. Payday loans are gigantic with over 10 times the amount of loans written, while title loans are much smaller. Example for comparison would be to think of the Payday loan industry as the corner office at the top of the Empire State Building and the title loan industry as the vendor on the corner selling hotdogs.
Even with this wide range of volume the viewpoint from BOTH sides is pretty much the same. When speaking with our title lenders the first reaction I heard was relief. Some of these companies have budgets of over $300,000 or more per month just to do Paid Ads on Google. This is 3.6 Million dollars spent per year. Even smaller firms had $50,000 per month in spend. Industry wide we are talking about hundreds of millions of dollars for this space in paid advertisements. For some companies we spoke with it was the 2nd biggest expense item. Now that will all be saved or allocated elsewhere to acquire new customers.
Some companies will re-allocate that money to TV and radio ads. Others will do mailing and other forms of marketing, but a great deal of them will raise the money in their SEO campaigns. We have also caught wind of a few lenders allocating their PPC budget to open up local storefronts to make up for the loss in customers. The trouble with Googles change is the bigger players will have more room to spend while the smaller players will lose and eventually be driven out of business with hundreds if not thousands of jobs lost. My prediction? You will end up with the largest players in the industry winning this game. Not a bad thing considering they didn’t get so big if they offered poor loans.
So who else wins with this change in Google’s attitude towards Payday and higher interest loan advertisements? As long as Google does not make a core change to their algorithm, business that have high organic placement and lots of storefronts are going to see the most success. Industry innovators will also win. Keep in mind this industry is fluid and there are more Payday Loan storefronts than McDonalds or Starbucks. They won’t be going away any time soon. This billion-dollar industry will find a way and lenders will not simply disappear. They will seek new ways to do business. Even with lower interest rates if they have to. They will survive. Battered but alive.
A lot of people ask me why I support title loans and not payday loans. Educated people know that payday loans for the most part grew because just about anyone that breathes could get one with little or no checking to see if they could afford to pay it off. On top of this they have interest rates out of this world and structure the loan so it was hard for people to get out of it. This lead to the roll over and over and over until the companies made a small fortune off the unfortunate. I simply will not support this; HOWEVER, title loan companies are much different. They have lower APR’s and longer loan terms, sometimes 2-3 years.
Title loan companies, at least the bigger ones, have compliance and audits and underwriters and verifiers and so on. They are careful not to over-fund a customer and even more careful to make sure the person can pay the loan while STILL paying for household needs. Most have fully amortized loans and when you are done with the payments the need to roll over is minimal. Yes, the interest rate is higher than a bank but if a bank would give people loans when they need it, title loans wouldn’t need to exist. People NEED title loan companies and title loan companies NEED people who need fast loans. The goal of a title loan company is to not repossess the customer’s car and they typically only see an 8-10% loan default, 90 to 92% of people fully pay off the loan and do not lose their car.
I know people who work as staff in both payday and title loan companies. They are not monsters. They are not inhuman. They are not mobsters. They are mostly people like you and I that at one point or another needed a job. They now have the benefit of hearing someone hopeless call them and have a product to restore their hope to help get them through their immediate financial issues.