For example, Thelma Fleming, a mother of three children and a grandmother of 10, lost one of her two jobs. To survive, she emptied her bank accounts, gave up her car, and pawned some of her possessions, including gifts from her grandchildren. When she still needed an extra $300 to cover monthly expenses, she went to a payday lender, who lent her the money at 300 percent interest. She would eventually take out five loans to buy the time she needed to pay off the original $300. In the end, she had paid $2,500 in interest over the course of 10 months in order to borrow just $300.

Stories like Fleming’s are quite common. Most payday loans are followed by at least another loan but often another 10 payday loans. This cycle of debt is an obvious problem, but the very existence of the fringe banking sector is a symptom of something deeper.

Consider another story. Steven Thomas earned great money before the financial crisis, but he had made some investments that all started to go bad during the crisis. From one day to the next, Thomas couldn’t pay his daily expenses. Despite his best efforts, he was headed for financial ruin. He was confident he could get back on his feet if someone would just help him survive this short-term financial emergency. Luckily, he found a miracle lender who would make generous loans and charge him an exceptionally low rate—the lender happened to feel that it was in its best interest for Thomas to avoid bankruptcy, so it was willing to ignore the obvious credit risk he posed.

This is a true story, but Steven Thomas is not a real person. He represents the largest American banks, and that miracle lender is the federal government. Why is it that Thelma Fleming and Steven Thomas are treated so differently?

This inequality is not inevitable and cannot be chalked up to the basic economic laws of supply and demand, which require a higher cost of credit for the average person than the average bank. Both Fleming and the banks should have failed, according to market rules, but the government intervened on the banks’ behalf. In the United States, the banking market does not operate according to standard market rules.

The truth, though, is that the source of Fleming’s loans is the same as the banks’—only the banks got it for practically nothing, and Fleming got it bundled with life-crushing interest. Payday lenders, which consist of a handful of large corporations, get their loans from the largest commercial banks at low interest. These banks, of course, get most of their credit through customer deposits and the federal government. Even their use of consumers’ deposits, for which they pay virtually nothing, is made possible by an insurance scheme backed by the full faith and credit of the federal government. Banks also receive direct Federal Reserve money at a cool 1 percent interest, not to mention “discount window” loans, which help banks survive a credit crunch.