Payday loans are generally not overnight and are typically not collateralized; they are in fact very risky.
Repo's are overnight borrowing collateralized by the US Treasuries. Basically it is borrowing to maintain capitalization requirements in these high volatility times. From the perspective of the US government they have literally 0 risk (you are guaranteed to get back either USD denominated money or US treasury).
You should compare it to a payday loan that is collateralized [1]. And then where the collateral happens to be insufficient because a glut of that item just came on the market (analogous to the sudden rush of banks needing to convert their Treasurys to cash).
For the ordinary person, "Sorry, can't help you, you just have to deal with the fact that everyone else is selling that product too and so it doesn't provide the value you want and you have to take a big loss or an interest rate corresponding to higher risk."
For banks, "Omg! You can't sell your bonds at par because everyone else is trying to sell before maturity? You poor thing, let me buy them up for you with new money!"
[1] Sometimes referred to as "title loans", as you might e.g. put up your (remaining equity in your) car as the collateral.
Except for they are not using random bonds, they are using Treasuries. This isn't random toxic debt, it's the debt of the US government to itself. More akin to "if banks are insolvent this ensures a certain degree of quantitative easing", which is a good thing since we are undershooting our inflation targets as is.
If they were unwanted, the 30 day interest rate would spike, but it hasn't. This is purely a move to provide liquidity, which is the essential job of the Fed.
What's the story here? Banks are buying 30-day bonds so they can borrow overnight with the Fed? They can only borrow up to the amount of the bond, so why don't they just... use the money directly rather than in this roundabout fashion.
If the Fed wants to keep the 30-day interest rate down, they can just buy the bonds directly themselves. They don't need to wait for the banks to buy the bonds and then repo them.
They are buying treasury and selling a treasury future, which nets them some premium. They then fulfill overnight capitalization requirements with the very same treasuries. Future premiums are higher than overnight lending rate.
Repo's are overnight borrowing collateralized by the US Treasuries. Basically it is borrowing to maintain capitalization requirements in these high volatility times. From the perspective of the US government they have literally 0 risk (you are guaranteed to get back either USD denominated money or US treasury).