California officials are getting help from Microsoft Corp. and Google Inc. to hold back a flood of Internet ads by unlicensed payday lenders — companies that often charge excessive fees to borrowers with no other source of credit.
The initiative, announced Tuesday, will for the first time ensure that the biggest search engines quickly remove offending ads when the California Department of Business Oversight formally orders lenders to stop breaking state law that limits such fees.
It will affect ads placed on Google, Microsoft's Bing, and Yahoo, which is covered because Bing controls Yahoo's search pages.
The offending lenders “prey on our most vulnerable consumers,” said Jan Lynn Owen, the department’s commissioner.
Unlicensed lenders, many based outside the country, often just change their names when challenged and continue operating. Regulators compare them to the targets that pop up repeatedly in the arcade game Whac-A-Mole.
“Nobody is pretending that this is not an extremely difficult fight,” said Department of Business Oversight spokesman Tom Dresslar. “But if we can shut down the advertising, it's a step in the right direction.”
Payday lenders that repeatedly renew high-cost, short-term loans — a practice consumer advocates characterize as creating debt traps for borrowers — can collect fees equivalent to an annual interest rate of 460% without running afoul of California law.
But lenders operating without California licenses frequently charge even higher fees, the department said.
The office said it took 18 enforcement actions last year against payday lenders, 15 of them against unlicensed online lenders and most involving illegal high fees.
“One lender charged an annual interest rate of 2,320%,” the business oversight agency said. “Additionally, some of the lenders made loans that exceeded the statutory limit of $300.”
The department said it consulted with Microsoft and Google officials in developing the initiative and provided them lists of unlicensed lenders already hit with enforcement actions. In response, Microsoft and Google reported blocking ads by 39 unlicensed lenders, the agency said.
The department also said it hopes “to optimize search results so its enforcement actions against payday lenders are displayed prominently and in a way that can be easily identified by consumers.”
Consumers can check whether payday lenders are licensed by visiting the department’s website, where they also can file complaints. The toll-free consumer number is (866) 275-2677.
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