• Google Company Hit with Millions in Penalties

    Sometimes you reap what you sow.  Google is finding this out right now.

    An online loan company funded by Google was just hit by the federal government with a massive fine for misleading consumers through advertising and marketing materials that mislead borrowers.

    Matthew Zeitlin of Buzzfeed reported on September 27, 2016:

    The online lending startup LendUp will pay compensation to its customers and a penalty to a federal regulator, which said the company “hid the true cost of credit” and “misled customers about graduating into lower-priced loans.”

    In total, the company will pay out over $6 million, with money going to customers, the Consumer Financial Protection Bureau, and California’s Department of Business Oversight.

    LendUp, a startup based in San Francisco, offers small, short-term loans at high interest rates through its website. The company says it’s different from old-fashioned payday lenders because it tries to build up the credit history and financial capabilities of its customers. LendUp also promises “no hidden fees” and “clear terms and conditions.”

    LendUp is a company that is a subsidiary of Flurish Inc.  Flurish Inc. was the recipient of investment money from Google Ventures (GV), a company that operates independently from Google, yet was founded by Google as a venture arm of the company.  Bill Maris and Rich Miner are two Google executives who manage the fund.

    The Consumer Financial Protection Bureau (CFPB) has been targeting online lenders with a new proposed rule that will make it as hard to get an online loan as it is to secure a mortgage for a house.  The new rule would impose paperwork requirements, termed Ability to Repay, that will be a deterrent for companies to issue loans and it will make it very difficult for consumers to comply with the new rule.  In the end if this rule is implemented as written today, many online lenders will be driven out of business.

    One irony in this action is that Google has been a company that has implemented one of the anti-online loan policies of the Obama Administration. The Justice Department implemented something called Operation Choke Point that sought to choke financial resources for industries like gun dealers and online lenders.

    Google should not be too angry though, because they changed corporate policy to implement Operation Chokepoint with regard to online lenders access to Google advertisements in the search engine.  This helps LendUp to corner the market, because online lenders can’t advertise using Google.

    On May 11, 2016, Andrea Peterson and Jonnelle Marte reported in the Washington Post the following:

    Google announced Wednesday that it will ban all payday loan ads from its site, bowing to concerns by advocates who say the lending practice exploits the poor and vulnerable by offering them immediate cash that must be paid back under sky-high interest rates.”

    So LendUp was just hit with a CFPB sanction, yet the parent of LendUp, Google, was implementing a policy that discriminated against competitor online lending companies for the same activities. How ironic.

    This speaks to the idea that we see in Washington far too many times.  Companies love to regulate competition into the ground.  With Google, they used Operation Chokepoint as an excuse to use the search engine to hurt competition.  Now they are getting hammered by the power of big government and they don’t like it.

    Google has reaped what they sowed and nobody should shed a tear for the giant search engine company that has a hammerlock on the market for search engines and massive advertising revenues that come with that market.

    Cloakroom Confidential

    Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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