This is a qualified “yes”, because many people simply do not have the income or creditworthiness to qualify for conventional loans or credit instruments. The payday loan is good for rare and catastrophic emergiencies and other unanticipated expenses that even the most responsible, but financially limited individual may encounter.
But payday loans are a terrible way to make ends meet month after month, even if they are at a reasonable rate. The borrower, in those cases, needs to look in the mirror and to ask some tough questions.
The problem with payday loans is not the loans, themselves. The problems are either in the repeated need to borrow in order to make ends meet or in the usurious interest rates that are charged. How the lenders are able to charge 400% interest is incomprehensible in a society that bills itself as more developed and superior to any other society in the history of the world!
How the borrowers manage to dodge the many government and non profit financial counseling and support services while paying 400% interest, month after month is equally puzzling.
Of course, the risk of lending money to individuals who do not have collateral, financial sense or credit worthiness to back the short term loan is vastly higher in the payday loan industry, but the profits tell the truth. If payday lenders are making excessive profits, then their they are lying about the need to charge excessive lending rates to all borrowers. Simply put, when there are excessive profits, then the risk is not as high as the payday lenders profess it to be.
One way to handle the issue of borrower defaults is to require payday lenders to maintain an inviolate trust or individual savings accounts that come from fees paid by the borrowers. That savings trust could be used to recover defaulted loans with more accuracy than vaguely collecting funds from all with the excuse that “some” borrowers commit fraud or defaults.
This decade of an unregulated environment of greed and redistribution of wealth has done great damage to many lives and has driven people to predatory lenders.
Yet payday lending predation and abuse continues to be ignored at the national level, forcing the states to take action. Many states simply prohibit payday lending. While payday loans could help people who are in a rare and unusual crisis, they are easily abused by the person who cannot exercise good financial judgment. If the payday loans are not completely banned, at least the excessive interest rates and recurring borrowing to make ends meet should be prohibited.