With the housing crisis and less-than-robust economy making paupers out of people who thought they were living the American Dream a few years ago, investors are looking for ways to capitalize. Yesterday, I wrote about the strong business that self-storage companies are doing housing the belongings of former homeowners.

Today's Heard on the Street column (subscription required) in the Wall Street Journal looks at another obvious beneficiary of other people's misfortune: pawn shops and payday lenders. Shares of companies like First Cash Financial Services (NASDAQ: FCFS) and EZCORP (NASDAQ: EZPW) have run up nicely in recent years but have since pulled back as times have gotten tighter. Some analysts blame the aggressive expansion of pawn shops into payday loans, which lack any form of collateral.

"The earnings strength of payday loans is untested in a tough economic environment, when borrowers who lose their jobs default on the loans," according to The Journal. "And the business has come under increasing fire from state legislatures and consumer groups, which contend that the fees on these uncollateralized loans often amount to interest rates of as much as 400% a year."

The contradiction here is remarkable, and the Journal doesn't point it out: investors are worried that payday lenders are running the risk of defaults high enough to wipe out the profits from high-interest loans. Meanwhile regulators and consumer groups are accusing the companies of charging outrageous interest rates. But which is it? If the high "interest" on the loans isn't enough to overcome defaults, then the interest rates aren't high enough! Perhaps this explains why none of the big banks offer payday loans.

You will make very few friends defending the payday lending industry, the modern day loan sharks whose short-term cash loans to working people can have interest rates that soar into the triple-digits on an annualized basis.

Except they're not really interest rates. The loans are short-term -- generally about two weeks -- and if you were to extrapolate the amount paid for the loan to 52-weeks, yeah the interest rate is high. But you can't hold the loan for that long.

Payday lenders are the target of a lot of consumer groups, who charge that these lenders prey on low-income workers. Virginia is the site of the latest showdown between the industry and its critics, with one minister describing it as a "David vs. Goliath" battle in an Associated Press piece.

But it's really more like David vs. David. The fact is that payday lending just isn't that profitable of a business. Don't believe me? Take a look at the margins for some of the publicly traded payday lenders -- they're actually lower than some credit unions!

That's not to say that payday lending is good. It's actually a terrible deal for the consumer, and something that should be avoided. The problem is that the short-term loans have high costs for everyone involved: high default rates, high overhead for the lender, and that all requires a high "interest rate" if you want to call it that. If payday lending were so profitable, wouldn't someone else come in and do it for a little bit less money and make a fortune?

For the uninitiated, "payday lending" is an industry that provides short-term loans that are generally due when the borrower receives his next paycheck. For this "service," the borrower pay an outrageous interest rate, generally 10-30 dollars per 100 dollars borrowed, a steep rate for a 14-day loan. Advocates of increased regulation of the payday lending industry frequently point out that, annualized, the interest rates on these loans frequently runs high into the triple-digits. The Consumer Federation of America reports that the average annual interest rate on these loans is 470%.

It seems that, these days, you will make very few friends as an apologist for the payday lending industry. To help battle its hugely negative image, the industry trade group, The Community Financial Services Association of America, has launched a nationwide advertising campaign, and promised to give borrowers more time to pay off loans. Thirteen states have effectively banned payday lending, although Georgia is currently mulling allowing it again. According to the National Conference of State Legislatures, 52 payday-loan related bills have been introduced in state legislatures.