What's different about the payday loan industry such that the "better to have some alternative than no alternative" argument not apply? Running such a business clearly takes lots of work, and clearly there is lots of demand for the services they provide. What differentiates them from other business that provide "value"?
They take extraordinarily high margins, often involving mis-representation to their customers along the way (largely by illustrating their fees as flat numbers, which obfuscates that if you translate it into actual APR terms - to compare to other lenders - they're asking for what equates to absolutely ridiculous interest rates).
Generally, if there's a demand for a service, people should come flooding in and reduce the marginal profits through competition. In this case, people came rushing in ... and profit margins went up over time. This alone, in a big picture perspective, suggests shadiness (though not by itself guaranteeing it, since you could argue for growth in demand outstripping the growth in supply).
Pay day lenders are required by law to publish APR. The ugly truth at the bottom of it is that their customers base is fundamental to stupid to know what is good for them, or too impulsive to make responsible choices, or too desperate to seek alternatives, or too ignorant to know their alternatives.
Their are some easy improvements (education and outreach and banking programs for the poor and poorly educated) and some controversial ones (removing citizen's legal rights and freedoms to make self-destructive decisions)
I had a friend who worked for a UK payday lending company. The borrowing patterns of customers seemed hard to interpret as being in their long-term interests. Customer retention was too high and borrowing patterns too consistent for the loans to be primarily shielding customers from unexpected shocks rather than just punishing their lack of self-discipline.
The parent companies of traditional banks instituted high overdraft fees and the ChexSystems blacklist to steer poor customers away from checking accounts and towards the check cashing and payday loan companies, which they also own, but which have vastly higher margins on poor customers. At least, this is the claim I've seen thrown around.
