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:

A landing page for a payday lead generator. (via paydaysuccess.com).

Or this:

A landing page for another payday lead generator. (via https://quickercash.com/).

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?

This lead generator claimed to have connected us to a lender. (via https://www.flashpayday.com/)

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.