US Democrat backs credit card transaction fee bill

By John Poirier

WASHINGTON, May 15 (Reuters) - Legislation is needed to give U.S. merchants more power to negotiate transaction fees with credit card companies Visa Inc (V.N: Quote, Profile, Research) and MasterCard Inc (MA.N: Quote, Profile, Research), a senior Democratic lawmaker said on Thursday.

The U.S. credit card industry last year rang up $42 billion in interchange fees, which are incurred each time a consumer uses a credit card to buy a product. A merchant's bank typically pays the interchange fee, ranging between 1.6 percent and 2 percent of the purchase price, but the merchant pays it indirectly as a component of a larger set of fees charged by the bank.

Rep. John Conyers, chairman of the House Judiciary Committee, introduced a bill several weeks ago that would create a panel to determine interchange rates and terms.

Critics say the legislation amounts to government price controls and would hurt smaller banks and credit unions that cannot afford to cut fees like bigger banks.

Visa and MasterCard officials warned the legislation could lead to higher costs for consumers.

"This proposed legislation would replace a competitive, free market system with price controls," Joshua Floum, Visa's general counsel, told a hearing held by the House Judiciary Committee's antitrust task force.

"These smaller institutions rely on interchange to keep their card programs running," Floum said.

Joshua Peirez, chief payment system integrity officer at MasterCard Worldwide, pointed to a study in Australia that showed government regulation resulted in higher annual fees for consumers because merchants did not pass on the savings.