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U.S. Bank was the first bank of scale to offer a small-dollar loan product to help customers cover an unexpected expense. It’s also leveraging customer engagement with the product to drive financial education.

Four years ago, U.S. Bank was the first bank of scale to offer a small-dollar loan product. Since then, the easy-to-understand loan has helped customers cover unexpected expenses – such as car repairs and healthcare bills – as a far more affordable option than loans made by alternative lenders.

When the bank launched Simple Loan, the goal was to power the potential of its customers by providing a trustworthy, transparent loan option that didn’t carry the same fees and interest as a payday loan or other small-dollar loans offered by nonbanks which can equate to an APR of several hundred percent. The result was a small-dollar loan of up to $1,000 over a three-month period that charged a straightforward dollar amount for every $100 borrowed. And after three years of offering the loan, the bank was able to lower the cost in 2021 by 50% to $6 for every $100 borrowed.

“Simple Loan provides many of our customers piece of mind, knowing that they can access funds when they have to cover a necessary expense that they can’t afford in that moment,” said Mike Shepard, senior vice president of direct consumer lending at U.S. Bank. “It’s a tool to help our customers navigate past those tough, often unexpected financial situations without setting them back.”

A recent U.S. Bank survey of Simple Loan borrowers found that the product was most often used for an unexpected expense – 58% – with a car repair being the top specific reason at 29%. But 17% of borrowers also used Simple Loan for a less frequent personal expense. Paying off other, more expensive debt was third most likely reason for taking out a Simple Loan at 9%.

Simple Loan also has the benefit of more consumer protections that come with borrowing from a bank, and as the Pew Charitable Trust has noted “millions of borrowers now using payday and other high-cost loans could save billions of dollars annually” from more affordable bank alternatives.

According to their analysis, a $400 three-month payday loan would cost a borrower roughly $350 after accounting for interest and fees, which is much higher than the $24 installment loan offered by U.S. Bank, which estimates that customers could have saved more than $25 million since the launch of the product if it was used as an alternative to the average payday loan.  

But it’s not just cost that makes Simple Loan an important offering. The transparent loan structure, and the speed at which a borrower can get the needed funding are also key. U.S. Bank personal checking customers whose account has been open for at least six months with three months of recurring direct deposits can apply for the loan online or using their U.S. Bank app and get a real-time loan decision with funds deposited directly into their account within minutes.

“We knew that if we were going to build a product that was going to deliver significant value to our customers facing an immediate liquidity need, it needed to have a straightforward pricing structure so our customers could make an informed borrowing decision, and it also needed to be fast,” Shepard said.

Another key component to Simple Loan is financial education. After a customer applies for a Simple Loan, U.S. Bank will begin sending customers financial education resources – starting with topics such as steps they can take towards building a rainy-day fund, but also information on how to manage debt and strengthen their credit file.

“We know that having knowledge is only the beginning to improving one’s financial situation,” said Shepard. “Our customers consistently tell us that they want and are open to receiving support to improve their financial health from their bank but aren’t sure where or how to start.”

U.S. Bank also leverages its digital tools that make it as easy as possible for customers to achieve their savings goals, including automated savings tools, and campaigns that deliver insights encouraging customers to take small actions to save.

“We want to help support our customers with both the funds they need to get through their emergency, and the financial education tools they’re looking for,” Shepard said.