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In theory this can be covered by Bitcoin P2P lending, or even by "Bitcoin banks". The main problem here is, however, volatility. If you borrow 1 BTC and just there is a Bitcoin rally, you'll have problems to pay it back. Thus, at this moment, the P2P lending market is not very developed (it exists mostly to provide capital to short sellers) and is not adequate for the "average Joe".
Volatility is also a problem if you got your salary in BTC and don't want it to lose value if there is a crash. (For the volatility problem I'm reseaching for a solution "without" centralized providers, see
here).
Right, I didn't even consider the volatility side but as for the Bitcoin lending, seeing how it's currently developed it won't really work.
Let me explain: Currently, if a person is looking to borrow money and try to use a lending platform such as Nex.io, Celsius, or any others he needs collateral. It's almost impossible for a company to provide collateral, otherwise, there is no use to borrow money if the company already owns the funds. Better for the company to sell the collateral and start with it. But as I said companies rarely have collateral, they have perhaps 10% and a money machine idea.
Using a P2P lending platform still has problems. I don't see random individuals ready to lend money to the first foreigner coming without knowing him etc. That's how it worked on BTCJam and see yourself how the story finished.
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Also here ... Joe would have to lend Bitcoins to someone and he would get paid interest for that. But the volatility-related risks are still to high for "average Joes".
In reality, how would you see this structured (without a 3rd party), and especially how the lenders could be protected?
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This depends heavily on the country you live. In my country I can pay almost all services with cryptocurrencies, but only via a third party payment processor company (which again, are not banks but also regulated and mostly have KYC/AML procedures).
Are you referring to BitcoinSuisse? Just asking in case there is another country where it's possible to do it (I remember a state in the US too)