The reason they have to charge high interest rates (500+% APRs, similar to Pawn shop rates) is precisely because they cannot ‘breaka you legs’. And they are dealing with extremely high-risk populations. So they have to be compensated for it in a different way.
If you can’t charge high fees (which effectively translate into high interest rates) or high interest rates for such populations, the proposition makes no economic sense for the lender without high APRs. And if they go out of business, the would-be borrowers may indeed go to the next-best alternative, which is somebody who threatens to ‘breaka you legs’.
There is a whole sector of the lending economy known as ‘hard-money lenders’ who also charge extremely high interest rates for what (seems like) legitimate business purposes. I know a few individuals who are in the business. Their typical client is someone who needs the money for a short period of time - usually a month or so - to close a real-estate deal, or an equity investment in a small company, or some other transaction that is complicated, time-consuming to underwrite and/or unpalatable to banks for some other reason. The lender will usually charge anywhere from 5-15% plus fees for a month. You can multiply that by 12 and get a feel for the APR.
The loans are usually heavily collateralized with low LTVs in the 50% range. This is so the lender has high confidence they can recover if the borrower defaults. Sound familiar? It’s basically pawn-broking, but at a much larger scale and more ‘legitimate sounding’.
Payday loans are often unsecured and therefore have little recourse to the lender in the way of asset reclamation if the borrower defaults. Therefore, the interest rates need to be sky-high to accomodate for that lack of recovery potential.
A lot of people have a lot of energy aligned against outlawing these joints. I’m somewhat indifferent, other than to notice that if they are growing and successful it’s probably for a reason. Meaning, there is demand for their services. The demand will likely go elsewhere if the payday loan shops go away. I know people would love to believe otherwise, but human history has shown that not to be the case.