Why it matters

At the intersection of Hollywood and Silicon Valley, the California Department of Business Oversight (DBO) announced a new initiative focused on the advertising of payday lenders. According to DBO Commissioner Jan Lynn Owen, unlicensed online payday lenders are “one of the most significant consumer protection threats” in the state, leading her office to work with major search engines—such as Google, Microsoft, and Yahoo—to limit the lenders’ online advertising. The DBO—which handled 15 enforcement actions against unlicensed payday lenders in 2014, including one lender that charged a 2,230 percent annual percentage rate—will identify an unlicensed lender and issue a cease and desist order. When the order becomes final, the DBO will reach out to the search engines, which will “take quick action” to block the lenders’ ads. The regulator is also working with the search engine providers “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.” While many regulators have targeted online payday lenders—from the Federal Trade Commission to the Consumer Financial Protection Bureau to New York’s Department of Financial Services, the California DBO’s efforts to combat online advertising provide a new twist in enforcement activity.

Detailed discussion

The California Department of Business Oversight (DBO) announced a new way to tackle the problem of unlicensed, online payday lenders: eliminate their advertising.

“Unlicensed payday lenders who operate online rank as one of the most significant consumer protection threats the DBO fights,” DBO Commissioner Jan Lynn Owen said in a statement. To “protect borrowers from paying excessive fees and getting trapped in a debt spiral,” her office announced a new initiative in coordination with Google and Microsoft.

Under the program, the DBO will identify an unlicensed online payday lender and issue a cease and desist order. When the order becomes final, the DBO will notify designated individuals at Microsoft and Google (Yahoo is covered in the program because Microsoft’s Bing controls Yahoo’s search pages). If the search engines find that the lenders are advertising on their pages, the ads will be blocked.

The DBO has already provided both Google and Microsoft with a list of unlicensed lenders that have previously been the subject of enforcement actions. Based on that information, the search engines have already blocked the ads of 39 unlicensed lenders.

In addition to the reactive ad blocking, the DBO is working with the search engines to proactively warn consumers about certain lenders. For example, the parties are exploring “ways to optimize search results so [DBO] enforcement actions against payday lenders are displayed prominently and in a way that can be easily identified by consumers.”

The DBO noted that in 2014, the agency took 18 enforcement actions against payday lenders, 15 of which were against unlicensed online lenders. Some of the actions challenged loan fees (although state law caps payday loan fees, the DBO found one lender that charged an annual percentage rate of 2,230 percent) while other lenders made loans in excess of the $300 statutory limit.

“Nobody is pretending that this is not an extremely difficult fight,” DBO spokesman Tom Dresslar told the Los Angeles Times. “But if we can shut down the advertising, it’s a step in the right direction.”

To read the DBO’s announcement about the initiative, click here.