Google has announced stern measures to protect consumers from “deceptive or harmful" loans that have been previously marketed in its app store.
International media reported yesterday that the Internet giant will soon ban some payday loan apps from the Play Store as part of a crackdown on what it says are harmful practices.
The Wall Street Journal reported Google is banning Play Store apps that offer what the company calls "deceptive or harmful" loans with annual percentage rates (APR) of 36% and higher.
According to the newspaper, the new rules only apply to the US for the time being, in order to conform to the recently-passed Truth in Lending Act in the US.
The report says the new expanded financial policy came into force in August, and Google says it is already helping protect users against "exploitative" rates.
“This ensures apps for personal loans have to display their maximum APR – including both platforms that offer loans directly and those that connect consumers with third-party lenders,” said the Wall Street Journal.
Announcing the measures on its Developer Policy Centre, Google said: “We do not allow apps that promote personal loans which require repayment in full in 60 days or less from the date the loan is issued (we refer to these as ‘short-term personal loans’).
“This policy applies to apps which offer loans directly, lead generators, and those who connect consumers with third-party lenders.”
The latest move by Google comes at a time SA’s unsecured lending boom has left 40% of borrowers in default and millions of people in a debt trap, according to fund manager Differential Capital.
In new research, the fund manager says about 7.8 million of the country’s 60 million residents have taken out a combined R225 billion of loans without collateral, mostly for short-term needs such as furniture and urgent family care.
Differential Capital says in SA, unsecured loans are marketed as products enabling consumers to live better lives.
“These loans are marketed for everything – from holidays, education, home improvements and cars, to emergency needs, funerals and more.
“The unifying theme within the marketing of these products is that it enables one to ‘get ahead’ in life or overcome an apparent urgent financial need. The marketing has been effective. Unsecured lending now accounts for 25% of all new retail credit disbursed legally,” reads the report.
“The value of unsecured loans outstanding has unsurprisingly grown dramatically since the introduction of the National Credit Act (NCA).Following a short reprieve after the failure of African Bank, and the introduction of affordability assessments in 2016, it is enjoying something of a resurgence now,” says the research.
According to the fund manager, while these loans may be touted as constructive credit, “the reality is somewhat different”.
Differential Capital says: “Unsecured loans have costs which many would consider egregious. Until the imposition of caps on credit life in February 2017, the NCA only regulated the interest rate, initiation fees and services fees. Loans were, and still are, bundled with add-on products such as credit-life insurance and membership fees.
“It adds that for the lender, it does not matter if the return is earned from regulated or unregulated streams.”
The government, through the Department of Trade and Industry, has capped credit-life insurance and attempted to solve the add-on product phenomenon.
Differential Capital says government has maintained that position even although all-in costs remain high relative to other forms of credit.
The fund manager argues that “the all-in cost of credit is egregious by any measure. A person in need of a one-month loan is not likely to be able to pay an annualised yield of 225% without likely needing further loans, thus ensnaring them in a debt trap.
“Our research indicates South African consumers are credit-hungry and shop for ‘bang for buck’. Consumers are not preoccupied with the cost of credit, but rather the size of the loan.
“The consumer prefers to pay off a loan over several months, as this enables them to get a larger loan. Lenders are accommodating to all but the worst risk of clients (with risk in this context being relative). This drives the industry to riskier and longer-term loans.”
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