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The payday loans industry says its short-term, small-dollar loans serve a need and help tens of millions of cash-strapped customers every year.

But the loans can be costly, so more than a dozen states have banned them, and a few others have restricted payday lending.

Now, at least one major financial institution believes payday loan-type products are useful and not harmful to borrowers — and is looking for a piece of the action.

The problems with payday loans

Payday concept. Calendar with black felt pen background, close up
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They're called "payday" loans because the money comes due within a couple of weeks — theoretically, the next time you get paid. Though payday loans can help people deal with temporary financial setbacks, critics call them predatory.

The lenders charge stiff fees, which inflict a lot of financial pain when a borrower can't repay a loan in time and must take out a new one.

"A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%," says the Consumer Financial Protection Bureau. "By comparison, APRs on credit cards can range from about 12% to about 30%."

The debt can spiral. The average borrower takes out eight loans of $375 per year and pays $520 in interest, the Pew Charitable Trusts found.

US Bank gets in the game (sort of)

ST PAUL, MN/USA - SEPTEMBER 10, 2017: US Bank exterior and logo. U.S. Bank is ranked 7th on the list of largest banks in the United States.
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Now, despite the potential for increased scrutiny and regulation, U.S. Bank — America's seventh-largest banking company — has decided to get into the short-term loans market.

The bank's "Simple Loan" allows account holders to borrow small amounts (up to $1,000) for brief periods (up to three months) to cover gaps in income.

The Simple Loan is not exactly a payday loan, but the effect on borrowers is much the same.

U.S. Bank charges hefty fees — equivalent to an annual interest rate of around 71% or more. A $100 advance comes with a $15 fee, which can be cut to $12 if you agree to the auto-pay repayment option.

Criticism -- and response

Female hand with money in cash department window. Currency exchange concept
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Consumer advocates are not impressed with the Simple Loan and say it would violate states' anti-loan-sharking laws that apply to lenders that aren't banks.

"This type of product isn’t a safe alternative to a payday loan," says Rebecca Borné, senior policy counsel at the Center for Responsible Lending, in a statement. Her group is urging federal banking regulators to limit the fees to an annual percentage rate APR of 36%.

A U.S. Bank spokeswoman told MarketWatch consumers are warned that the loans are "a high-cost product," and are told they may have other options.

One alternative might be a personal loan, through a lender like Even Financial. You don't need to provide collateral, can borrow even if your credit is only fair, and personal loan interest rates are usually capped at 36%.

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