There are more payday lending stores (22,000) in the United States than there are McDonald’s locations (12,804). A typical payday loan, or the euphemistic “cash advance,” will charge $15 to $30 on a 2-week $100 loan, for an effective APR of 390% to 780%.
The payday lending industry claims that these rates are not predatory because they are still better than any of the other options for short term, small loans. For example if someone is down $100, bouncing a check would cost ~$48, a credit card late fee would cost ~$30, and a late/re-connect fee for utilities would cost ~$50.
I don't buy most of the arguments of the payday lending industry, notable for their strong-arm and misleading lobbying tactics, but the truth is that there are not many alternatives for individuals who live paycheck-to-paycheck and feel forced to turn to a check cashing shop for immediate needs. I'm happy to see that peer-to-peer lending may be able to change that.
Yadyap is a p2p lending platform focusing exclusively on the payday loan business. They haven't launched yet, but you can follow their news here. I'm slightly wary of lending myself given the poor credit scores of their target borrower demographic, but with a decent track record of low default rates, I could be on board. Here is a sneak peak of their operating model:
"At YadYap borrowers receive instant loan approvals, funds quickly deposited to their bank account, and lending rates that are determined by the free market through a competitive auction. Additionally, YadYap tracks each borrower’s performance and shares these scores with lenders. Good performance is rewarded with lower interest rates and loan fees as more lenders compete to fund their loans."
 Brook, Daniel. “Usury Country.” Harpers Magazine. April 2009.
Flickr Credit: Orin Optiglot