Today the NYT has a story on a nonprofit organization that is offering payday loans in order to help debtors out of the payday loan trap where a one-time borrowing of $150 balloons into $2000/month just for financing charges (yikes!).  Although some customers felt very appreciative of GoodMoney, a collaboration between Goodwill and a credit union, who eventually allowed them to turn numerous serial payday loans into one 12-month loan with a much lower interest rate, some critics complained that the payday loans offered still had high APRs:  $9.90 for every $100 borrowed for two weeks compared with $22 for every $100 for two weeks. 

However, what was interesting is that the very high rate that GoodMoney, the nonprofit, charges covers losses due to bad loans and administrative costs.  To charge a lower rate, GoodMoney would either have to lose money or fundraise to cover shortfalls or in the alternative, offer their services only to those with better credit, which might not serve their mission.  I think critics of payday loans have all along suspected that the 500-plus% APR was compensating for more than the inherent risk of the loans, but I'm not sure that I realized that 250% was necessary.

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