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Senator revives credit card fee reform

By Kevin Drawbaugh and Maria Aspan

WASHINGTON/NEW YORK (Reuters) - The No. 2 Democrat in the U.S. Senate said on Wednesday he will push to amend a massive Wall Street reform bill with a measure addressing credit card fees affecting retailers.

So-called "interchange" fees are charged to supermarkets, convenience stores and other merchants by credit card lenders every time a customer uses a credit card. Fees totaled $48 billion in 2008, up from $42 billion in 2007.

"We're going to have a bill that addresses the interchange fee and try to bring some fairness to it," Senator Richard Durbin said in remarks on the Senate floor. "This is one of the major concerns of retailers and businesses.

"We're not saying there shouldn't be an interchange fee," he added. "We're saying it should be reasonable."

Interchange fees boost credit card companies' revenues, and the prospect of their regulation has been a long-standing concern for firms like Visa Inc and MasterCard Inc.

Bills that would regulate the fees have languished without widespread support in Congress, but Durbin revived and intensified the card industry's fears this week when he introduced three interchange-related amendments to the broader reform bill.

"It's highly unlikely that the card acceptance fee or interchange regulation will move in this environment on its own. However, there's a vehicle here -- the (regulatory reform) bill -- and the golden opportunity for advocates of regulation is, attach to that vehicle," said Eric Grover, a payments consultant and a former Visa employee.

One of Durbin's proposals would let merchants give discounts to customers who use one type of credit card over another, or who pay by cash or some means other than by credit card. They could also set minimum purchase levels for using a credit card.

If Durbin succeeds in attaching any of his amendments to the broader bill, few lawmakers may be able to justify voting against the bill just to defeat the interchange amendments, Grover said.

"Nobody wants to be against Wall Street reform," he said. "Big banks (are) politically toxic. The networks themselves, Visa and MasterCard, (are) not politically sympathetic."

MERCHANTS VS. CARD COMPANIES

MasterCard Chief Executive Robert Selander acknowledged in an interview on Tuesday that his company is aware of the Durbin amendments.

"The intervention here, the arbitrary intervention of Congress is inappropriate," he said, adding that some lawmakers are "absolutely" receptive to MasterCard's argument against interchange regulation.

Visa called the Durbin amendments "an eleventh hour attempt by lobbyists, representing some of the nation's largest retailers and trade associations, to hijack the Senate financial reform measure," according to a prepared statement from spokeswoman Denise Dunckel.

Fears of changes to interchange fees have recently hurt shares of Visa and MasterCard, Sanford C. Bernstein analyst Rod Bourgeois said on Monday. A congressional hearing on the issue was held last week, adding to those fears.

Regulation also threatens an important source of revenue for credit card banks, which get about a fifth of their annual card revenues from interchange fees. Those lenders have seen other sources of income restricted by the credit card law last year, which limited the fees and interest rate increases that lenders could apply to consumers.

SEEKING BROADER REFORM

"The danger here is that these amendments open the door to future interchange legislation or regulation," said Concept Capital policy analyst Jaret Seiberg.

The amendment that allows merchants to set minimum purchase levels "is relatively benign, which means it will be hard to defeat," he said in a research report.

But that amendment, if successful, would not address all the merchant concerns, according to Jeffrey I. Shinder, a managing partner of the New York office of Constantine Cannon LLP and a longtime advocate for interchange reform.

"There are those within the banking industry that covertly would not mind that amendment to pass, because it could relieve the pressure on interchange more globally," Shinder said. "It would be a really bad result should that alone pass, and then those who are defending interchange can turn around and say, 'Ok, the system's fixed. Can we stop talking about this?'"

(Editing by Dan Grebler, Bernard Orr)

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