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U.S. Bank takes on payday lenders

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U.S. Bank is introducing a new loan program aimed at cash-strapped people who need to borrow several hundred dollars for a few months — and are willing to pay very high interest rates. 

Annualized interest rates for the three-month loans of up to $1,000 are 71 percent or greater. But U.S. Bank says its loans would be far cheaper than many other lenders' short-term loans, often called payday loans. 

"We know customers have unexpected short-term cash needs," said Lynn Heitman, an executive vice president with the bank. "And we believe that we can help our customers."

She said that a recent Federal Reserve Bank study found that 40 percent of adults would have to borrow money or sell something to cover even a $400 surprise expense.

Heitman would not say how profitable the bank anticipates the loans will be but said the expected the return would be "acceptable." She said that interest rates reflect the risk of borrowers not paying back loans.

Meanwhile, for borrowers not eligible for lower-interest loans or unable to tap credit card or other lines of credit, the U.S. Bank loans might be their cheapest alternative, Heitman said.  

Borrowers must be U.S. Bank customers for at least six months and pass credit and other eligibility checks.

"We want to make sure that the loan that we're going to give to them is something that they can pay back," Heitman said. "So, we will be looking at things like their payment-to-income ratios and their debt-to-income ratios, just to ensure we're setting the customer up for success."

Each customer can obtain only one loan at a time. After repayment, there is a 30-day waiting period before a customer can seek another small loan.

Heitman said that as a national bank, U.S. Bank is not subject to state caps on loan rates. In Minnesota, for instance, there's a 33 percent interest rate limit on payday loans between $350.01 and $1,000. The  Minnesota Attorney General's office says "Minnesotans should not obtain payday loans that do not meet these fee caps."