I think Payday Loans are both necessary and provide a valuable service regardless of the perceived problems of high charges, first lets clarify what Payday Loans provide, short-term cash advances until the next payday.

The typical charges for this type of loan are of the order of $15-$20 per hundred dollars borrowed so if you took a $250 loan the charge could be as much as $50 for a 30 day loan, this is equal to 240% APR, with such high rates one has to ask why is this industry growing so rapidly.

The answer is that it is providing a service that is required, at a price that the consumers can afford; the actual APR is of no great interest to the customer their only concern is can I afford to repay the loan on my next payday.

Think of it from the client's point of view, why do they use Payday Loans, I believe the answer falls into two parts

One. Because it is fast and convenient.

Two Because they probably cannot get credit in any other way.

For a borrower with a poor credit history Payday Loans offer a cash lifeline when it is most needed, to pay those unexpected bill or to prevent repossession of an item that has been bought on credit for example.

Problems only arise when clients are unable to repay loans but surely this applies to all forms of credit not just Payday Loans.

All the above not withstanding one still has to ask, are the high charges applicable to Payday Loans justified?

I think they are, first because payday lending is usually dealing with high-risk clients with a poor or no credit history. Second the costs of issuing a Payday Loan are much the same as issuing a much larger loan over a longer period, but these costs have to be recovered in a much shorter timescale with a Payday Loan hence the need for higher charges.

To summarise, Payday Loans provide a service that is in high demand by clients who can generally be considered high risk from credit point of view and the charges reflect the costs involved. If there were no need for the service, in a free marketplace it would cease to exist but until alternative sources of finance are available to them people will continue to use Payday Loans regardless of the charges and other apparent disadvantages.