Sure, if you loan someone $1000 and they have to pay you $1,080 in a week, your APR is roughly 400%. It’s just an extrapolation of the $200/$205 example. The risk would depend on the likelihood that the person would return with $1080, how many other loans you had to absorb the loss, your available capital, etc. I may not have understood your question, though.

Edit: in response to your edits, I think your credit union example is a good one. That is exactly why credit unions are valuable; they have a local/regional reach similar to payday, but they are cheaper, and they will lend to people that Bank of America, Chase, etc. won’t touch.

In my experience, credit unions have stricter lending rules. Mine does offer an overdraft protection, which is essentially the same as a payday loan, for $30; no matter the amount. I could go $2 over and bam, $30. This also applies to each transaction.

They do allow me to keep cash in my savings and still pull from this "credit", so for example I can transfer everything to savings and let my rent hit this "credit line", but if I'm not careful this is way more expensive then a payday loan.

Yes, there is an incongruence between use of a punitive fee to discourage behavior and the fact that fee revenue subsidizes low interest rates at many credit unions. The saving grace is that they are much more likely to refund the fee than a bank, but they don’t do it proactively let alone based on member profiling for financial illiteracy (low average balance, history of overdrafts, etc.) I think the approach could be much better.

Here’s a startup I really like that I think solves this overdraft problem effectively. They charge something like $1/mo for their service which likely isn’t sustainable standalone, but could work as a standard account feature at a bank/CU. https://www.dave.com

I have both a bank account and a credit union account (for various reasons, I actually have accounts with several local credit unions). My bank (USAA) will refund nearly any fee if you ask. My credit union will tell me to pound sand. I otherwise like them, but they are super strict. My bank also has zero-fee overdraft protection as well. But I have a credit card with them, so that probably is why.