UPDATE 1-US bill would help retailers negotiate card fees

(Adds comment from Visa, retail industry)

By John Poirier

WASHINGTON, June 5 (Reuters) - Small and large retailers would be allowed to negotiate transaction fees with credit card companies under legislation introduced in the U.S. Senate on Thursday.

The bill, sponsored by Illinois Democrat Richard Durbin, comes amid complaints from local stores, gas stations and other retailers that they have little power to negotiate with Visa Inc (V.N) and MasterCard Inc (MA.N) on interchange fees.

"There is no meaningful competition or negotiation involved in the setting of interchange fees," Durbin said in a statement to announce his "Credit Card Fair Fee Act of 2008."

Durbin said the cost of transacting a purchase with one swipe of a Visa or MasterCard credit card is decreasing but the fees to do that are rising.

Visa and MasterCard have previously denied that fee rates have increased. Visa said in a statement that Durbin's legislation represents "unnecessary government intrusion" in a competitive marketplace that has benefited consumers, merchants and banks.

"It would suppress competition and innovation, and would harm consumers and small financial institutions in particular," Visa said.

The National Retail Federation welcomed what it called "anti-trust legislation."

"The introduction of this bill shows ... that both the House and the Senate are ready to bring the credit card companies' greed under control," NRF Senior Vice President Mallory Duncan said.

The two companies are the dominant electronic payment players with 70 percent of the market, amounting to an estimated $30 billion in interchange fees last year, Durbin said.

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.

In the transaction, typically, a merchant's bank 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.

Consumer groups, grocery and drug stores and other retailers are concerned that the payment card industry is setting higher non-negotiable fees for card transactions and the system lacks transparency.

Earlier this year, Rep. John Conyers, a Michigan Democrat who chairs the House Judiciary Committee, introduced legislation that would create a panel to determine interchange rates and terms.

Visa, MasterCard and issuing banks criticized the bill as amounting to price controls that will result in higher fees for consumers and said it would hurt smaller banks and credit unions that cannot afford to cut fees like bigger banks can. (Reporting by John Poirier; Editing by Tim Dobbyn and Braden Reddall)