From HBO's 'Last Week Tonight with John Oliver' on Aug. 10, Oliver's take on payday lending.

HBO's John Oliver turned his humor-laced outrage on payday lenders Sunday, holding them, celebrity pitchman Montel Williams and their legislative allies up for some well-deserved ridicule.

Citing a study that found 75% of payday loans were taken out by people who needed to take out another loan before their first one was repaid, Oliver said, "Basically, payday loans are the Lays potato chips of finance. You can't have just one, and they're terrible for you."

The central dilemma for policymakers, though, is that payday loans are wildly popular in spite of their egregious terms. Executives of payday companies have cited that popularity repeatedly in Sacramento as they've sought to loosen the state's limits on their products. Countered Oliver, "The customer demand for heroin is also overwhelming, and that doesn't mean it's a product you'd necessarily recommend to your friends to get them out of a jam."

The demand for payday loans indicates at least one of two things about the industry's clientele: they're financial naifs, or they can't find any other way to respond to their financial problems. Surveys by the Pew Cheritable Trust in 2012 and 2013 suggest that both things are true. 

"Borrowers perceive the loans to be a reasonable short-term choice but express surprise and frustration at how long it takes to pay them back," Pew reported last year. "Seventy-eight percent of borrowers rely on lenders for accurate information, but the stated price tag for an average $375, two-week loan bears little resemblance to the actual cost of more than $500 over the five months of debt that the average user experiences. Desperation also influences the choice of 37% of borrowers who say they have been in such a difficult financial situation that they would take a payday loan on any terms offered."

And here's a telling pair of statistics from Pew's 2012 survey: 69% of the payday borrowers interviewed said they used the money "to cover a recurring expense, such as utilities, credit card bills, rent or mortgage payments, or food," compared with only 16% that dealt with "an unexpected expense, such as a car repair or emergency medical expense."

It doesn't require Jet Propulsion Laboratory-level math skills to recognize that a short-term loan will be no help if you're income isn't large enough to cover your recurring costs. Similarly, if you're hit with a large and unexpected bill while you're living paycheck to paycheck, getting a loan you have to repay in two weeks isn't going to do you much good.

Pew found that many payday loan borrowers could afford to handle a loan that they paid off over several months, rather than in a single pay period. But that's a bit like saying a bald man would look better with a full head of hair. The payday lending industry exists almost exclusively to serve the people to whom banks don't want to give installment loans. That's true in part because of the borrowers' credit scores, in part because there's so little money to be made on a small-dollar, low-interest loan.

For years, the extremely low interest-rate caps in California's usury laws made loans between $300 (the maximum for payday loans) and $2,500 virtually non-existent. In response, the Legislature established a pilot program that allowed interest rates of up to 36% on sub-$2,500 installment loans from non-bank lenders, beginning in 2011.

One requirement of the program, said Mark Leyes of the California Department of Business Oversight, is that lenders help boost their customers' financial literacy. Doing so should persuade a percentage of the likely customers that they shouldn't be taking out loans of any kind. Similarly, these lenders are expected to determine an applicant's ability to repay the loan before handing over the money, which is something that payday companies don't do.

That's all great in theory. The reality is, the program hasn't taken off like a rocket (nor have similar efforts in other states). Although the first participant, Progresso Financiero, is said to be expanding rapidly, it is one of only four companies to have signed up. By contrast, it's not hard to find four payday-loan storefronts within walking distance of one another in some parts of Los Angeles.

The real test of the program's success will be whether its borrowers default less frequently than they do on payday loans, said Suzanne Martindale at Consumers Union. She added, "It really is too soon to know whether these attempted alternatives to payday loans will be sustainable for business and manageable for consumers."

For his part, Oliver argued that the right approach to payday borrowers is something along the lines of tough love. He cited another Pew survey finding from 2013, that many borrowers "ultimately turn to the same options they could have used instead of payday loans to finally pay off the loans," such as getting bailed out by friends or selling or pawning some possessions. 

He also offered to mount a "counter-campaign" against the ubiquitous payday loan commercials "to remind people to make sure to explore all their better options first." Of course, with comedienne Sarah Silverman serving as his celebrity spokeswoman and outlining those options in graphic detail, Oliver's campaign won't be coming to broadcast TV. But the point is worth making regardless.

Follow Healey's intermittent Twitter feed: @jcahealey