Think competition always works? Look at Turkey.

Of all the insults that the consumer banking industry has hurled at the public's intelligence in the fight over noxious fees—29 percent credit card interest, arbitrary rate hikes, and the rest of its shoddy practices—the most galling is the argument that for the government to intervene in any of this would be to hamper competition and keep banks from serving their customers. In Bank Bizarro world, the chance to pay $39—sometimes five times in one day—for losing track of one’s balance and pulling out a debit card to pay for a soda is a service consumers are asking for.

This week, JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) finally decided they needed to give some ground and start rolling back their overdraft fees, one of the most out-of-control excesses of the bank business. But as the debate heats up over legislation that would put an end to the abuses, you'll see the bank defenders throw up their old banner, hoping that if they stay on message with the credo “Don't mess with competition,” it might stick.

Here's how the industry's argument goes: Since, say the banks, we have a vigorously competitive banking sector, if consumers aren't getting something better than the banks are giving them, it must be because they don't want it. In this they get backing from friendly economists such as George Mason's Todd Zywicki, who claim that because folks can always avoid overdrawing their accounts or paying their cards late and choose not to, they must like the option of paying the fees their banks have foisted on them.

The reasoning here could have come straight from Candide, the title character of Voltaire's great comic novel, who insists that because God made sure that we live in the best of all possible worlds, every misfortune is actually a good thing we just don't appreciate. But it's been repeated often enough that it's worth addressing just how wrong it is and why.

The hidden premise in the banks' rhetoric is that “unregulated” means the same as “competitive.” Unfortunately, it doesn't. What happens in some markets unhampered by rules is that big players find strategies to avoid competing. Ideologues and lobbyists will try to tell you our markets work so well that this scenario is just not possible. But it is, and here’s one way to cut through the insanity and prove it: Take a virtual economic fact-finding trip to a place where the bank and credit card business has gone even further off the rails than it has here. That would be Turkey.

Though not as wealthy a country or as developed an economy as the United States or its European neighbors, over past years Turkey has built up a burgeoning credit card industry. By the end of 2007, according to a study by Turkish economists Ahmet Aysan and Lerdan Yildiz, Turks held some 36 million credit cards, or roughly one for every two people. That's not yet at the level of the United States or Japan, but it's more than twice as many as Italy, Germany, or France. Four big Turkish banks hold major shares of the credit card market. This is similar to the United States, though these top banks together control less of the market than the top four banks in the United States, and the rest of the market is split among nearly 20 others. Most cardholders in Turkey don't carry a balance (you'll see why in a second), and the default rates on credit card debt are very low, much lower than in the United States.