The Hill News

Today, every time a consumer swipes a debit card, the business pays a fee of 1 to 3 percent to the bank that issued the card. These fees average 44 cents per transaction -- but on July 21, a new policy will go into effect limiting them to 12 cents for big banks.

As one might expect, those big banks have cried foul. Sen. Jon Tester (D-Mont.) has an amendment that would delay this policy with an eye toward killing it, and many conservatives have taken his side, claiming that the government shouldn’t interfere in the market.

To be sure, they’re starting with a good principle: The business world tends to correct itself without government involvement. Most of the time, if a company jacks up its prices for no reason, consumers will go elsewhere.

But that is not how swipe fees work. There is no market force keeping them in check. That’s why a bank can charge 44 cents on average for a service the Fed has determined actually costs 4 cents on! average to perform without being put out of business by a lower-priced competitor.

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