In principle, the debt market charges rates that are commensurate with the risk of repayment. Some studies[0] show a relatively high default rate for payday loans. Moreover, the people who borrow from these facilities likely have very poor credit scores.
That's not a comment on the fairness of the rate charged. But if there is a sufficient amount of competition among lenders, and they were effectively regulated and monitored, we could expect their rates are enough to allow them to make a reasonable profit in spite of the risk of default.
In some country consumer credits are regulated and the interest rate is capped. Also it is not legal in some country to grant a credit if the lender cant't pay it back (e.g. in the european union)
>> Also it is not legal in some country to grant a credit if the lender cant't pay it back (e.g. in the european union
European Union is not a country and every member state has their own rules regulating this, there isn't one payday lenders rulebook across the entire EU.
As for what you said - it's true, except that it boils down to a checkbox on the form "are you able to make repayments on this loan?" and that's about it, that takes care of the legal side of things.
That's not a comment on the fairness of the rate charged. But if there is a sufficient amount of competition among lenders, and they were effectively regulated and monitored, we could expect their rates are enough to allow them to make a reasonable profit in spite of the risk of default.
[0] https://thehill.com/regulation/237538-borrowers-default-on-n...