By Coulter Jones, Jean Eaglesham and AnnaMaria Andriotis
Lenders that target struggling borrowers for loans with
triple-digit interest rates have overcome yearslong efforts to
restrict their lending and are pitching their products to consumers
in need of cash during the coronavirus pandemic.
They sidestepped state crackdowns by joining with out-of-state
banks to offer loans and now are bypassing ad bans put in place by
Google, which calls their offerings "dangerous financial products,"
and Facebook Inc., a Wall Street Journal investigation found.
The investigation, involving hundreds of online searches, shows
that the lenders are marketing loans that typically carry annual
percentage rates of around 200% to 500% to consumers looking online
for financial help amid the biggest wave of job losses in U.S.
history. Google and Facebook removed several ads and said they
blocked the companies' websites from advertising again after they
were contacted by the Journal.
On Facebook, Florida-based Check Cashing USA in April advertised
that customers could cash stimulus checks and "receive your money
in minutes" -- for a 1.75% fee -- and pitched consumers with payday
loans at rates of as much as 521%. Facebook removed the company's
ads after being contacted by the Journal for comment.
Brian Socolow, chief operating officer at Check Cashing USA,
said the company started advertising on Facebook a few months ago
and that it made up a small portion of its advertising budget.
"We don't allow predatory lending services to advertise on
Facebook and have removed the violating ads and pages," the company
wrote in an email. In some cases the ads themselves didn't offer
payday loans, but linked to websites or Facebook pages that
directed customers to payday loans.
Many banks have been tightening underwriting standards in recent
weeks, making it harder for consumers with low credit scores to get
credit cards and other types of financing.
Lending Shifts Online
Under the Trump administration, the federal Consumer Financial
Protection Bureau has taken fewer enforcement actions against
payday and high-cost installment lenders than it did during the
Obama years, according to the Pew Charitable Trusts, a nonprofit
organization.
The CFPB has said it intends to drop a proposed lending
requirement that would have been one of the first federal rules to
protect borrowers using payday and other high-interest loans. A
CFPB spokeswoman said in a statement that borrowers already had
"robust" legal protection. The regulator "will take action to
enforce applicable federal law against bad actors," the statement
added.
The lenders came under fire in many states because their
high-cost loans left borrowers in a debt cycle, said Alex Horowitz,
a senior research officer at Pew. States such as California and
Colorado cracked down, but the lenders bypassed their restrictions
by joining with banks from states where there are no interest-rate
limits to make the loans, the Journal has previously reported.
High-interest lending grew in recent years despite a strong
economy and low unemployment. Some of it has shifted from
storefront payday lenders to online installment loans.
Traditional in-store payday lending was down about 11% in 2018
from the prior year, but payday loans originated online were up
about 4% in 2018 to $14.2 billion and accounted for nearly half of
payday-loan originations, according to the latest data from John
Hecht, an industry analyst at Jefferies.
Nonbank installment loan originations to subprime borrowers
totaled $19.2 billion in the first half 2019, up 22% from the
year-earlier period and up about 157% from first half 2014,
according to Experian PLC.
Loans Almost Impossible to Pay Off
Izetta Ferguson, 55 years old, of Charleston, S.C., said she
needed $1,500 to pay for an unexpected car repair last year. Ms.
Ferguson, a caregiver for a local organization that provides
services to the disabled, said she did a Google search along the
lines of "help with my loan even though my credit isn't good."
That led her to Credit Sesame, a California-based company with
millions of customers that offers free credit scores and
loan-comparison services. It earns revenue if borrowers click on
its links, then sign up for a loan. Ads for Credit Sesame appeared
in the results of online searches done by the Journal of the type
that a desperate borrower might do.
Ms. Ferguson said she clicked on one of the first lenders
recommended, Rise Credit. Texas-based Rise, which appeared in the
Journal's searches, agreed to lend Ms. Ferguson $1,500. The annual
percentage rate was 298%, and the cost of the 11-month loan was
$2,990.54, nearly twice the amount borrowed, according to the loan
agreement.
After three months, Ms. Ferguson had paid Rise Credit more than
$1,100. When she checked online, her loan balance was $1,457 --
just $43 lower -- according to a complaint she made to the Better
Business Bureau. She said she was shocked to discover how much she
was being charged.
"I feel taken advantage of -- they know that if you're in a bind
and see a way of getting out, you leap at the chance," Ms. Ferguson
said. "Lord have mercy on anyone contemplating using this
company."
A spokeswoman for Credit Sesame said in a statement the company
didn't "bid on any keywords related to emergency, payday, or
installment loans, and we do not advertise...high-cost loans to the
public." The company added that high-cost loans "make up a very
small fraction of our business." The spokeswoman said Credit Sesame
didn't currently offer links to Rise loans.
Elevate Credit Inc., which owns the Rise Credit brand, wrote in
its response to Ms. Ferguson's online complaint that "we disclose
on our website that Rise is an expensive form of credit," adding
that the cost of the loan is shown "in great detail in the loan
agreement." An Elevate spokesman declined to comment further.
Ad Bans Not Working
Google, Facebook and other big technology companies began
banning advertisements for payday loans about five years ago amid
pressure from regulators and consumer advocates. The restrictions
vary by tech company but generally apply to loans with repayment
periods that are shorter than 60 or 90 days. Google also bans ads
for loans with annual percentage rates that are 36% and above.
The measures aren't always working, according to a Journal
review of hundreds of online searches and dozens of advertisements.
Some payday lenders sold loans that exceed the APR limits set by
Google and appear to be violating the ad bans. Others advertise
other services that then lead borrowers to payday loans. The policy
specifically pertains to ads and says that the landing page someone
is brought to by the ad must show the length of the loan and the
APR. That includes lead generators that aren't directly selling
loans, but matching customers.
The Journal found ads from nearly two dozen websites for
lenders, payday lead generators or other companies advertising or
linking to products that violated policy. It couldn't be determined
how long the ads ran or how many users may have viewed them.
On Google, a search for "laid off desperate for cash need loan"
led to an ad from easypaydaymax.com, a website that matches
borrowers with lenders offering payday loans. "Get your loan now!"
the site says, touting loans of as much as $1,000 with no credit
check required. "It is very unfortunate that sometimes bad credit
stops people from getting the help they need," the website says.
Easypaydaymax didn't respond to requests for comment.
"We have strict ad policies that prohibit payday loans," a
Google spokesman said in a statement. "Our systems are trained to
uncover these dangerous financial products and we have a dedicated
team working to protect users from malicious actors who try to
evade detection." The company said it removed nearly 9.6 million
financial-service ads with misleading information in 2019 -- about
double the number from the prior year.
Google's restrictions for high-interest lenders are limited to
ads, meaning payday lenders often appear prominently in search
results or highlighted on maps and related search boxes. The
Journal tested the company's search-engine controls by creating
searches that a desperate borrower might do. The searches, done in
December through April, turned up ads linking to payday and
installment-loans with annual rates up to 1825% -- way above the
35.99% cap imposed by the search engine.
Payday lenders that often came up in the searches included
LendUp, a fintech firm that is part-owned by GV, the
venture-capital investment arm of Google parent company Alphabet
Inc.
A LendUp spokesman said the company stopped advertising earlier
this year after the onset of Covid-19 (the disease caused by the
new coronavirus) and didn't run paid ads on Facebook or Google.
Most of its borrowers didn't come through online searches and
rather were repeat customers, the spokesman said. There is no
indication LendUp was given preferential treatment in the search
results.
"Find money if coronavirus left you unemployed," reads a pitch
that appears in search results from Compacom.com, a Glendale,
Calif.-based company that earns money from referrals to lenders.
Its website, citing news reports, counseled laid-off workers "don't
give up to despair." It then provided links to websites called
LendYou and GoGo Payday Loans that each in turn linked to payday
lenders.
Compacom said in a written statement it's "not trying to take
advantage of desperate borrowers...on the contrary we do our best
to help applicants to find better lenders and get better
deals."
A database of current Facebook advertisers reviewed by the
Journal showed several high-cost lenders using the social-media
site to market to borrowers. The advertisers pitch loans with
repayment periods longer than 90 days -- bypassing Facebook's ban
on ads for short-term loans -- but interest rates are still in the
triple digits.
Ace Cash Express is principally a payday-loan provider, but its
Facebook ads earlier this year sought customers for longer-term
loans. Ace's site had a message telling California borrowers that
"ACE no longer offers installment loans. Apply for a payday loan up
to $255."
A representative of Populus Financial Group Inc., which does
business as Ace Cash Express, didn't respond to requests for
comment.
High-cost lenders also buy data on Facebook users who have been
identified as people in financial distress from third-party
companies that compile the information without Facebook's
involvement. Chicago-based Exact Data sells marketing lists titled
"People Struggling With Bills" and "Get Me Out of Debt!" that
purport to offer millions of Facebook addresses for struggling
consumers. The price is as little as $249 for more than 10 million
names.
The Facebook information can be used for "prospecting
effectively by laser targeting [the] audience," said Larry Organ,
founder and chief executive of Exact Data.
Write to Coulter Jones at Coulter.Jones@wsj.com, Jean Eaglesham
at jean.eaglesham@wsj.com and AnnaMaria Andriotis at
annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
June 03, 2020 08:38 ET (12:38 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.