Usually because the borrower is not in a rational state of mind, and because we as humans focus more on today than tomorrow. Payday loans (like the loan sharks of old) take advantages of this in order to put borrowers in positions that a rational, future conscious person would never get into.
Economics say one thing, but it's the humans in the equation which muck up these otherwise ideal economic principals. Ultimately, economics should be there to serve people, not the other way around; payday loans are there to exploit people in need, not serve those who are in tough situations.
We can't assume that all of the borrowers aren't in a rational state of mind. And I'd hesitate to even say most of them aren't.
Payday loans serve a pretty specific purpose: covering short-term cash flow when you can easily pay off the interest in the next term. This is a fairly common problem for people on the low-income scale with little emergency savings. If a car breaks down, it may cost $350 to fix it, and that money is necessary now and not 10 days from now. It used to be that people would ask for advances from their employers, but this is a solution that sidesteps that.
Personally, I couldn't disagree more. It's my belief that people who think that those who take on really poor debt are in their rational minds and have a complete understanding of the consequences are really just trying to make themselves feel better about how badly their peers being taken advantage of. "It's their own fault; the system is fine."
But enough of beliefs. There is plenty of documentation about the costs to society available, including formal studies, which shows that even taking the time to better educate people about about the long term effects significantly reduces the uptake of payday loans.
Yes, in a few cases, they are useful as replacement for emergency funds. But I'm convinced by the literature and studies done about payday loans that if this kind of use is even a majority - it's barely such.
But don't take my word for it. Do a search for the "psychology of payday loans" and read some of the first party sources yourself.
The only thing I'd like to add is that you cannot design a system that allows for individualism and yet somehow does not require individuals "to be in a rational state of mind".
Besides, that is like attempting to "protect" a drug addict from the consequences of their actions. It is the one thing in the world that is worse for them than letting them suffer.
Usually because the borrower is not in a rational state of mind, and because we as humans focus more on today than tomorrow. Payday loans (like the loan sharks of old) take advantages of this in order to put borrowers in positions that a rational, future conscious person would never get into.
Economics say one thing, but it's the humans in the equation which muck up these otherwise ideal economic principals. Ultimately, economics should be there to serve people, not the other way around; payday loans are there to exploit people in need, not serve those who are in tough situations.