What happens when you click on a payday loan ad?
Down the long and winding road of ‘lead generation’
Meet Becky.
She makes about $25,000 a year and lives outside of Philadelphia. She just separated from her partner. Without that second income, she’s now struggling to make ends meet. She won’t have enough money to pay this month’s bills — including rent, cable, groceries, utilities, and childcare — before her next paycheck.
Becky is uncomfortable asking her family or friends for money. So she hops on her computer. She launches her web browser, goes to Google, and types in “need money to pay rent.” One advertisement next to her search result catches her eye: “Fast Cash! $100–500 approved in minutes, direct to your account. Bad credit OK!” Curious, Becky clicks on the ad.
The website is comforting. There’s a picture of a smiling couple. “Sometimes, everyone needs help making it to their next payday,” reads a caption. Becky types in her name, email address, and zip code, and then clicks the “Get Cash Now!” button. More questions: How much and when does she get paid? What’s her bank account and routing number? Her social security number? Becky hesitates, but fills these fields out. After all, the page says her data is secure. And she really needs the money.
Now, she’s redirected to a yet another site. It’s a lender. All she has to do is accept the loan terms and she’ll have $500 in her bank account tomorrow morning. She clicks OK.
But Becky’s story doesn’t end there.
In the following weeks, Becky isn’t able to pay down the full amount of her payday loan. She pays fee after fee to push the payment date back. After three months, Becky has paid $1,200 total — $700 in interest and fees on top of the $500 she borrowed.
That’s not all.
Ever since she got her payday loan online, she’s been getting a lot of calls from debt relief services and from online universities. A couple of days after she got her loan, the calls didn’t seem to stop: she’d get close to five a day.
All of this happened despite the fact that Becky’s home state of Pennsylvania has some of the strictest lending laws in the nation: A storefront lender could not have offered her such a loan in the first place.
Becky is fictional: she and her story are an illustrative composite, drawn from the real experiences of thousands of American consumers who take out short-term loans online. Those experiences are thoroughly documented in research by the Pew Charitable Trusts and other observers.
What borrowers like Becky don’t see is the long, obscure chain of actors that profit from their financial distress — a chain that ultimately includes large advertising platforms like Google and Bing, marketing affiliates, “lead generation” companies, and lenders.
The maze of online payday lending.
I work at Upturn, where my colleagues and I help policy professionals grapple with new technologies (big data systems, police body-worn cameras, that sort of thing). We decided to retrace Becky’s steps, and see what we could learn about how online payday lenders reach out to people online.
Let’s start with a Google or Bing search. If you enter a search term for “payday loan,” or even “I need money to pay for groceries,” you’ll see a result that looks something like this:
See all those ads? Many of those were placed by “lead generators,” and point to web sites that the lead generators operate.
A lead generator is basically a middleman: a marketer that collects and then resells someone’s data. Some lead generators aren’t even real businesses, but freelance individuals who in turn sell data to other lead generation companies.
If you click on these ads, you’ll see a “landing page” that looks like this:
Or this:
Lead generators are important to a lot of different kinds of businesses. For online payday lending, they are the lynchpin: Online payday lenders rely on lead generators to supply as many as 75 percent of their borrowers. Lead generators specialize in getting consumers to submit a lot of financial information — like how much they make, when they make it, and what their bank account numbers are — and then selling that “lead” to the highest bidder.
Given that lead generators — not lenders — are responsible for the lion’s share of payday loan ads on search engines, we wanted to see what they were up to. So, we decided to pretend we were a consumer (like Becky) living in a state that effectively outlawed payday lending.
We searched Google and Bing for keywords indicating financial distress (like “need a loan fast,” or “need money to pay rent”) from internet protocol (IP) addresses originating from states with strong payday lending laws — states like Vermont, New York, and Pennsylvania.) Along the way, we also double-checked to make sure that these search engines weren’t inferring our location from our Wi-Fi connections or other sources.
Here’s a sample of what we found when we pretended to be residents of Philadelphia:
The results looked pretty much the exact same when we ran the tests in New York and Vermont. So right away, we learned that payday lead generators are using platforms like Google and Bing to show payday loan ads nationwide, even in states that legally restrict both payday lending and payday lead generation. (This was somewhat surprising, given that both advertisers and ad platforms can choose to restrict the geographic reach of certain ads.)
Next, we wanted to see what these lead generators would do if we offered them some data. So, we clicked on ads and provided sample information on the lead generators’ landing pages.
What happened?
Payday lead generators almost always gobbled up our sample information. Even though this ‘applicant’ resided in a state with strong payday lending laws, almost every lead generator failed to filter form submissions in the front end. And it wasn’t just that they accepted the data in the first instance. Not only did some payday lead generators claim that they had matched us with lenders, but one lead generator also went so far as to claim that Pennsylvania “permits payday lenders to operate and charge any interest rate or fees which the borrower agrees to pay.” (It does not.)
At this point, our data has disappeared into the ether. It’s hard to track exactly what happens next, but we have a general idea.
Meet the pingtree.
“Pingtree” is just industry jargon for software that facilitates a real-time, online auction (“ping” is a computer term for sending out a signal to see whether someone else responds). Essentially, after someone like Becky enters her information, that “lead” is sent out across a network of lenders who may be pre-configured to participate at a certain price tier. So when Becky’s information enters this system, her information is first “pinged” to lenders at the highest price tier. If no lender bites, then she’s immediately pinged to the next lender at a lower price tier, and so on. This cycle will continue until the lead is purchased a set number of times by a variety of actors.
Within pingtrees, lead buyers can pre-define who they are looking for: they can specify demographic filters for leads, like the applicant’s state, income level, age, or gender.
At this point, a whole bunch of our data — which may include a social security number and bank account information — is bouncing from buyer to buyer.
Privacy? What privacy?
Payday lead generators can sell this sensitive information to, well, basically anyone they want. There’s no overarching federal law governing the collection and sale of personal data by commercial actors. So businesses make up some rules in contracts called “privacy policies.” Payday lead generators have some of the most permissive privacy policies that we’ve ever seen.
Seriously: online music streaming services offer you more privacy assurances—and that’s a company that gets a lot less sensitive data about you.
Take Money Mutual’s privacy policy. Money Mutual is one of the most visible payday loan lead generators out there. You might have seen them in a TV ad featuring Montel Williams. When you submit your information on their site, Money Mutual reserves a virtually unlimited “right to share, rent, sell or otherwise disclose your information” to other businesses.
Such privacy policy breadth is par for the course when it comes to payday lead generators. There is a group called the Online Lenders Alliance (OLA) which offers guidance and best practices for the payday loan industry, including lead generators. Their current guidance places no limits on how many times the same lead can be sold to different lenders, and it says nothing about the practice of sharing personal information with non-lenders, unlicensed lenders, or other third parties that really have no legitimate interest in the data.
Simply put: when payday loan lead generators resell consumers’ sensitive financial data to a wide spectrum of willing buyers — often recklessly and to buyers facing little supervision and little responsibility — a long-term blizzard of exploitative offers and significant risks of identity theft and fraud are the natural results.
That’s not just conjecture.
Time and time again, federal authorities have uncovered payday loan lead generators at the center of sweeping fraud. Take LeapLab as an example. LeapLab was a company that “collected hundreds of thousands of consumer payday loan applications.” Unfortunately, LeapLab sold consumers’ data recklessly. Some data ended up in the hands of a company called Ideal Financial Solutions. After buying those leads, Ideal Financial Solutions fraudulently debited millions of dollars from consumers’ bank accounts without their authorization. Sadly, many other lawsuits document similar failures.
Clearly, privacy and fraud are big problems.
Let’s not forget about the payday loans themselves.
Years of research show that payday loans are harmful to most borrowers’ financial health. And online payday loans are even more dangerous than their storefront counterparts: they are associated with much higher fees, longer-term indebtedness, and have higher rates of borrower abuse.
As Sarah Silverman put it on John Oliver’s Last Week Tonight, “if you’re considering taking out a payday loan, I’d like to tell you about a great alternative: It’s called anything else.”
So, even if you don’t fall victim to fraud, the loan, by itself, will very likely put you in a bad spot.
Is this even legal?
Payday lending laws are intricate and vary a lot from state to state. Some states prohibit payday lending, some severely restrict it to the point where it’s almost impossible or impractical to offer a payday loan, some moderately restrict it, and some others have fairly permissive laws.
Almost 70% of online payday lenders fail to obtain a required license in one or more of the states in which they make loans. To avoid regulation, lenders either resort to offshore incorporation, sovereign nation/tribal partnerships, or make legal arguments that the less restrictive laws of the lender’s home state should govern the loan transaction. (Lenders often lose such legal arguments, but the process is slow, patchwork, and state-by-state.)
Another piece of this puzzle? A growing number of states appear to require payday lead generators to also be licensed with the state and comply with lending laws. As one example, Pennsylvania requires anyone who “hold[s] himself out as willing or able to arrange for” certain loans to be licensed in the state.
So that’s the states. What about the search engines?
Today, Google and Bing already have advertising policies on the books that have good aspirations. Both require advertisers to comply with applicable state and local laws. That’s a good thing! Google also requires payday loan advertisers to provide a number of disclosures on their websites — things like a physical address for contact purposes and information about interest rates. Another good thing! And Google’s policy is to only serve “payday loan ads if the phrase ‘payday loan’ (or similar terms) are included in the user’s query.”
One big problem: these policies are incredibly hard to enforce effectively.
Let’s walk through this.
- Both Google and Bing require their advertisers to comply with local law.
- If 70% of online lenders aren’t properly licensed in one or more of the states that they lend to, imagine the number of payday lead generators that aren’t properly licensed across all the states they need to be. That percentage of noncompliance is easily much higher. (Even allowing for the jurisdictional arguments lenders and lead generators make in their own defense, we know those arguments aren’t always successful — at least some of the time, as past court rulings show, lenders and lead generators really are subject to the local lending restrictions that they intend to avoid.)
- Generally speaking, Google and Bing currently rely on other actors — from state law enforcement to other advertisers — to report wrongdoing or ad policy violations.
- Policies are violated en masse.
It doesn’t have to be this way.
State and federal regulators could crack down more often. The payday lead generators and their trade groups could tighten their data practices. But what about the ad Becky saw on Google — the click that started this all?
The simplest and most efficient solution might be for borrowers like Becky to never see such ads in the first place.
In August, Facebook decided it would simply ban all payday-related advertising. Google and Bing could do the same. Or they could take a somewhat more nuanced approach, banning payday ads in states that substantially restrict payday lending. (In our report, we argue that both approaches could be cheap, feasible, and scalable.)
You could argue that it isn’t Google or Bing’s job to fix this problem. It’s not their fault that they are in this tough position. And that’s a fair point.
But these companies make voluntary, human-driven decisions with their ad policies all the time (such as Google’s blanket ban on ads for smoking-related products). Given that these ads lead to such a dangerous, long, and twisted road, it makes sense for these ad platforms to seriously reconsider their policies and do more to protect their users. Policies aside, it’s distasteful to see large, responsible companies sharing in the profits from these toxic products.
In the meantime, if you’re searching for a loan online, click carefully.
To read more, check out our full report, Led Astray.
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