Please don’t take what I’m about to write as any sort of recommendation that you should use a payday loan company. Financially speaking, they are a bad idea. Period.

Payday loan companies are, at least from a finance blogger’s standpoint, the equivalent of a giant oil spill to an environmentalist. (Topical!) They are an absolutely terrible way for someone to get a loan. In comparison, credit cards look like they charge next to nothing for interest. I’m sure if many bloggers got their way, payday loan companies would be outlawed forever and their owners subject to some sort of ironic punishment.

I’m here to argue that payday loan companies have an important- no, necessary role to play in the financial markets.

Let me tell you a story. Meet Sally. Sally is 27 years old and the single mom of two kids because she left her drunk husband. Sally only has a grade 10 education because the prospect of working as a stripper appealed to her much more than struggling at school. Like most people from her sort of background, she can’t control her spending on credit cards, so she chooses not to even try applying for one. Sally lives hand to mouth every month, but manages a meager existence.

One day, Sally finds out her grandfather is on his death bed. Concerned, she wants to fly out and be there for his final days. Sally’s problem is that she has no money. What’s Sally to do? After asking all her friends for cash, Sally discovers they don’t have any more money than she does. Ditto with her parents and relatives, they’re strapped too. Defeated, Sally goes to a payday loan company and in 15 minutes she walks out with the money she needs. *

What’s the point of this story? It wasn’t to show you my skills in writing tearjerker dramas.

Payday loan companies serve an important role in the market. They lend money to people who have nowhere else to turn. Even people who are financially illiterate have emergencies. The difference between them and you is that you’ve planned for them. They haven’t because they don’t have the intelligence or they simply don’t care.

Remember prohibition? The unintended consequence of the banning of alcohol was the black market the mob created to quench demand. Can you not picture something very similar happening if we banned payday loans?

We let people consume all sorts of things that aren’t good for them. One could make the argument that everything from cigarettes to cheeseburgers be banned because they’re bad for us. Yet we live in a free society; we’re allowed to do and consume things that aren’t good for us because we deserve the choice. Payday loans fall under that category.

According to this report from the FDIC, an estimated 30 million Americans are either unbanked (no bank account, exclusively using payday loan lenders and check cashing places) or underbanked (having a bank account but not using things like credit cards, getting loans, etc.) That is a significant part of the market who would have little to no access to credit if it wasn’t for high risk lenders.

I would love for these people to get their act together and use more traditional forms of financing and save themselves money. Yet how realistic is that? Millions of people continue every day to smoke, drink or eat unhealthy food, knowing full well the consequences. We cannot legislate common sense, no matter how hard we try. We cannot legislate financial literacy either; you can’t force someone to learn and apply something that doesn’t matter to them.

The bottom line is that even though payday loan companies have some shady business practices, they provide an important service to a segment of the market that no other lender is willing to touch. I don’t think that’s really so bad.

*Sally doesn’t really exist, but millions of people just like her do.

Tell everyone, yo!