As long as there is money there will be people that need to borrow money. While there isn't anything unethical about lending someone money and charging interest, ethics does come into play when the interest rate charged is exorbitant. Payday lending, in my opinion, takes advantage of people who are already near the bottom of the economic totem pole by charging them unreasonable interest rates because they know their clients don't have many alternatives to borrow cash. It is also unethical because they realize that once someone becomes a client they are likely to need to continue being a client because they will have difficulty getting out of the cycle of borrowing due to having a low income. They basically are selling a financial trap and they know it!
Simply put, payday lending is when people borrow small amounts of cash - typically $100-$1,500 - to hold them over to their next paycheck. As of July 1, 2010 Arizona's law that allowed payday lending to charge beyond the standard 36 percent rate cap for the state has expired and will not be renewed. Lenders in Arizona were legally charging as much as 460 percent annually for these loans. There is no legitimate reason why a bank should have to charge 460 percent annual interest for any loan. If that is what they require in order to operate, then they really shouldn't be operating. Since the temporary law that allowed these outrageous rates is now going to expire payday lenders are packing up and leaving the state, making their product a failure in Arizona.
Here is an article on the recent events in Arizona where I found some of my statistics if you are interested:
http://www.azcentral.com/community/phoenix/articles/2010/06/27/20100627payday-lenders-quit.html
Here is also a news report about the dangers of payday lending and how they have been addressed in Ohio:
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