A number of states, as well as the US military, have placed maximum annual percentage rates on payday loans, which have effectively outlawed the service. Legitimate payday loan "stores" publish the APRs, it's in no way hidden. In fact, the application document practically screams the high APR, how much is being loaned, and how much must be paid back, and by what date (usually 2 weeks, which is why the high APR is required.) Another reason for the high APR is often the borrowers have a less than stellar credit history.
Here's why the incredibly high APRs... Let's say you need to borrow $500 to have your car fixed. And let's say the state has set a limit of 30% APR. If the loan had a term of a fully year, you would have to pay back the original $500 plus $150 interest. But the term is NOT 1 year, it's 2 weeks. A 30% APR for a 2 week loan would mean the payday loan store would receive interest of $5.77. There's no way any business could afford to loan $500 for two weeks for less than $6. On the other hand, using a round number of 600% APR (I believe most stores are closer to 450% APR), would result in having to pay back a bit less than $116 plus the original $500 after two weeks.
The simple fact is that sometimes people need an emergency source of money, due to medical bills, or in my case, having the transmission in my car fixed. Unfortunately I lived in NY at the time, which outlaws "usurious" interest rates. So I had no choice but to go to a drug dealer for a loan, and actually had to pay back substantially more than what a payday loan company would charge.
Mark
Excellent post!