They may have a point: a study by the Center for Responsible Lending showed that the majority of lenders' profits came from repeat borrowers who did so to meet their original loan obligations, and wound up paying fees each time.

Regulators generally are wary of payday loan practices, and this booming industry is the focus of legal struggles. This has resulted in a tug-of-war between lobbyists, some working to enable payday lending, others fighting to prohibit high-cost loans in the name of protecting the consumer.

Right now, payday lending is legal in 37 states. The rest have declared it illegal outright, or have passed laws with hard interest-rate caps that make it much less attractive to do business.

Of course, lenders have found ways around these discouragements. Under the legal doctrine of rate exportation, established by Marquette Nat. Bank v. First of Omaha Corp. 439 U.S. 299 (1978), the loan is governed by the laws of the state the bank is chartered in. Thus, payday lenders have forged relationships with banks from states without usury laws, such as Delaware (the same thing credit-card lenders have done); this way, they can offer loans which exceed the APR ceilings imposed by most states in the country. In response the FDIC has created guidelines which transition to a longer-term loan APRs after 6 payday loan renewals -- in order to discourage long-term debt cycles.
Likewise, some states now have laws limiting the number of loans a borrower can take at one time.

Some states also have limits on the number of loans permitted to be taken out per year (though borrowers have gotten around this by taking out loans from multiple lenders). Whatever the case, for laws to be effective, they need to include loan fees -- to prevent lenders from charging them and still claiming a low interest rate.

Some states have already cracked down: on March 1, 2006, the North Carolina Department of Justice announced the state had negotiated agreements with all the payday lenders operating in the state. North Carolina maintained that the practice of funding payday loans through banks chartered in other states illegally circumvented state laws. Lenders were forced to stop making new loans, agreed to collect only principal on existing loans. Plus they agreed to pay $700,000 to non-profit organizations for relief.

Georgia went even further, in 2004 making payday lending a felony, which included racketeering charges and the allowing of potentially devastating class-action lawsuits. Likewise, in 2007 New Mexico began capping fees, total number of loans by a consumer, and forbade immediate loan rollovers. Plus, a borrower unable to repay a loan is automatically offered a 130-day payment plan, with no fees or interest. And in January of 2008, the District of Columbia capped the interest rate on payday loans at 24 percent -- the same maximum rate for banks. The District also now requires payday lenders to be licensed.

The Canadians have weighed in too: in 2006, the Supreme Court of British Columbia ruled against a well-known lender in a class action lawsuit. Said lender charged its customers 21% interest, as well as a "processing" fee of C$9.50 for every $50.00 borrowed. The judge ruled that such fees were actually interest, and that the interest rate was of criminal proportions. Payout is expected to be several million dollars.