U.S. lawmaker wants proof credit card fees don't harm

By John Poirier

WASHINGTON, July 19 (Reuters) - The top U.S. lawmaker on a congressional antitrust task force said on Thursday that credit card companies need to prove their transaction fees are not harming merchants and consumers.

Consumer groups, grocery and drug stores, and other merchants are increasingly concerned that the payment card industry dominated by Visa and MasterCard Inc. (MA.N) are raising fees for card transactions and the system lacks transparency.

At a hearing by the House Judiciary Committee's task force, merchants complained that Visa and MasterCard are colluding to set interchange fees much as cartels can fix prices.

"While I come into the hearing with an open mind, I do believe the burden of proof lies with the credit card companies to reassure Congress that increasing interchange fees are not harming merchants and ultimately consumers," said Michigan Democrat John Conyers, who chairs the panel.

Each time a consumer swipes a credit card to buy a product, a store is charged an interchange fee that is divided among the store's bank, the consumer's bank and the credit card company, Conyers said.

Merchant banks typically pay interchange fees to card-issuing banks, but merchants themselves pay the fees indirectly as a component of a larger set of fees that their banks charge.

In 2006, interchange fees amounted to about $36 billion, a 117 percent increase since 2001.

Merchants, who seek price controls and more competition within the payment industry, said the fees are indirectly paid by consumers, unaware the fees are incorporated into the prices of products they buy.

"It needs transparency and genuine competition," said Mallory Duncan, senior vice president of the National Retail Federation. Interchange fees average about 2 percent for each Visa and MasterCard transaction, he said.

Representatives from credit card companies did not testify at the task force hearing. Last year, Visa and MasterCard began posting interchange fee schedules on their Web sites.

Visa USA Vice President Rosetta Jones said in a statement the interchange debate is about business decisions and not about antitrust issues. Jones said retailers and other merchants want to tack a surcharge on consumers who choose to pay with a credit card instead of cash.

In January, the European Union issued a report that recommended antitrust action against banks and credit card companies to reduce prices.

Merchants such as Kroger Co. (KR.N), Safeway Inc. (SWY.N) and Walgreen Co. (WAG.N) as well as rivals such as Morgan Stanley's (MS.N) Discover card unit and American Express Co. (AXP.N) have filed antitrust lawsuits against Visa and MasterCard.