"Capping fees at 18% (which is where a credit card is) would mean there wouldn't be a legal way for people with terrible credit to borrow money. Which just leaves the illegal one."
Former debt caseworker here.
The UK has one of the lightest regulated lending regimes in the world and one of the lowest incidence of illegal money lending. Germany and France have greater regulation and are estimated to have two and three times respectively, higher rates of illegal money lending. Source: Illegal Lending in the UK by The DTI. http://tinyurl.com/jmg5fxm
So long as a client had borrowed from a legal provider I had solutions available to offer them. On the rare occasions I had a client with an illegal money lender debt I only had the option of providing the client with contact details for the illegal money lending team. https://www.gov.uk/report-loan-shark Illegal money lenders do not recognise insolvency.
The few clients I saw who identified as having such a loan never took me up on reporting the matter even though they can do so anonymously.
In respect of APR's, as the pay day lenders correctly state, they are not an appropriate measure for short term lending. That would only be the case if they were constantly rolled over. I never saw a rollover occur more than twice.
Memory tells me that the highest debt I saw from a pay day lender was no more than 2.5k with most of them in the £500 to £1100 range. I don't recall any of the pay day lenders seeking to recover a debt via court claims. In practice this meant that if they did not recover the debt within about two years it would be effectively "written off." Sub prime lenders generally factor defaults into the business costs.
Pay day lending has all but ceased to exist since the FCA introduced stricter regulation in the UK. Several pay day firms went bust, some withdrew from the market altogether and those that remain are struggling. I don't know if this has lead to an increase in illegal money lending since I left the service.