US Bank joins the payday loans game

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

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)

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.