Brazil seeks credit card regulation, competition

* Proposals seek to end dominance of VisaNet, Redecard

* Legislators want more oversight by central bank

* Credit card industry association warns of over-regulation

By Natuza Nery and Fernando Exman

BRASILIA, July 15 (Reuters) - Brazil's Congress is moving to heighten competition in the $190 billion credit card industry, where customers and merchants complain about exorbitant costs and a dearth of options.

Last week the Senate approved a bill intended to force a reduction in the fees charged on credit card purchases. At an average of 4 percent of the sales price, the fees are roughly 70 percent higher than what is charged in Europe and the United States, according to a study by Senator Adelmir Santa.

The bill would allow retailers to offer discounts for cash sales, thereby putting pressure on credit card operators, including VisaNet (VNET3.SA) and Redecard (RDCD3.SA), to cut fees.

The Chamber of Deputies, the lower house of Congress, could vote on the bill as soon as today (Wednesday).

Other proposals are in the making. One, supported by both government and opposition parties, is to end the market dominance by Redecard and VisaNet and attract more players to the field. The measures could reduce the merchant fees, but would also undermine profit margins for card operators.

VisaNet and Redecard, which have exclusive contracts with Visa (V.N) and Mastercard (MA.N), respectively, have a combined market share of more than 90 percent. Both companies authorize merchants, issuers and transactions and act as a clearinghouse.

A proposal from the opposition Democratas party proposes to end such exclusivity, allowing a credit card brand to be managed by several operators. The ruling Workers' Party, or PT, backs the proposal, making its approval in Congress likely, analysts say.

"We want to stimulate competition and break this duopoly," said PT Senator Ideli Salvatti.

Former Finance Minister Antonio Palocci, a PT member of the Chamber of Deputies, recommends that existing operators be forced to share their networks with new competitors, including the machines used by retailers to swipe cards for authorization.

Legislators across the political spectrum are also working on a new regulatory framework to attract new players and centralize currently dispersed supervision under the central bank.

NO SUPERVISION

"This duopoly occurred precisely because no institution is formally in charge of supervision," said opposition lawmaker Paulo Bornhausen, head of the bloc of legislators representing retailers in the Chamber of Deputies.