Last week's edition of Newsweek ran a story on payday loans (Payday Loans Can Be a Trap.) The article explained the unfairness of payday loan system, and how the borrower can end up paying significantly large sums of money than they borrowed. For instance, one example quoted had a borrower pay $8000 on a $350 loan!

Although the article talks about only one type of unfairness in the system, it nonetheless explains the intrinsic unfairness of payday loans. In one of my articles, (Interest vs Risk-Sharing in Business Partnerships) among other issues I also pointed out that interest is inherently unfair, and consequently interest-based transactions are prohibited in Islam (although Quran does not explicitly cite any reason). The Newsweek article on payday loans provides a good perspective on unfairness of loans in modern economy.

Needless to state, this is not an attempt to justify Islam's ban on interest using this reasoning.