Why wouldn't competition prevent "usurious" payday loan rates?
The posted quote is economic nonsense.


  If a lender chooses to innovate and reduce cost to borrowers in order to secure a larger share of the market, the competing lenders will instantly do the same, negating the effect.


This applies to any industry without intellectual property protection -- it is hardly unique to the payday loan industry. By this logic, we'd expect to encounter massive price gouging across dozens of industries.

Besides, if payday loan innovation is in the form of software that better predicts default (the most likely path), it will be protected under copyright law and potentially software patents. And while business model innovations are not patentable, there's still a first mover advantage.

The payday loan business is not highly profitable.

Profit margins of payday-loan corporations are publicly available, and lower than most other industries. One study found that "despite the common belief, payday lending firms do not always make extraordinary profits. In fact, when compared to many other well-known lending institutions, payday lenders may fall far short in terms of profitability."

This is not surprsing, since the payday loan market is highly saturated, which suggests substantial competition.

"Usurious" APR rates are misleading.

A typical payday loan charges \$17 for a two-week \$100 loan.
Expressed as an annualized rate, this is an "outrageous" 390% APR.
But the loan's short-term nature means transaction costs will likely prevent a large profit.
(The source of this information is potentially biased. Be sure to read critically.)