I don't agree the APR is misleading. An APR is a normalised, comparable rate. That's exactly why you should look at the APR. Just because the loan is for a short time is irrelevant. It's like staying in a hostel and being charged a 5* rate just because you'll only be staying there for a short time.
Edit: the company you are borrowing from will be borrowing the money they lend to you at probably 10 - 15% APR (in the UK). That's quite a spread.
There are even worse APR's. Suppose you place a bet at 2:1 odds, 7 minutes before a 3 minute horse race. The racetrack is essentially borrowing money from you at at an APR of 3.6 million %!
The right way to look at loans is to break them down into APR and default risk multiplier. The total amount which needs to be paid back is DRM x exp(APR x duration). Payday loans, much like the racetrack, have reasonable APR's but high DRM's.
Dividing ln(DRM) by small numbers is as ridiculous as dividing a $1 investment by 1/1 billion % of a company and claiming that 37 signals has a $100 billion valuation. Yeah, they are using a standard formula, but in a ridiculous way. Models are pointless when you use them beyond their range of validity.
Let's say that 1 in 10 payday loans are written off, and one in 10 payday loans companies fail. What rate of return to you need to make it worthwhile investing in this industry (the capital has to come from somewhere). What if it's 1 in 5?
I don't think this business is a licence to print money, the various providers must be competing with each other...
A monthly rate is no less normalized or comparable than an annual one, and it's more representative of the timescales the loans are actually used for. If you required hotels to report their nightly rates in terms of how much it would cost to stay there for a year, they would look about as ridiculous as a 400% APR. I don't know how hostel pricing works, but at least in the US staying in a hotel for a year is fantastically more expensive than renting a comparable furnished apartment for a year.
Edit: the company you are borrowing from will be borrowing the money they lend to you at probably 10 - 15% APR (in the UK). That's quite a spread.