Senators want detailed credit card fee info

WASHINGTON (Reuters) - Several U.S. senators want Visa Inc and MasterCard Inc, the dominant electronic payment companies, to break down detailed costs associated with transactions called interchange fees, according to letters obtained by Reuters on Tuesday.

In letters to the two companies, the senators demanded information about methodologies and specific data used to establish interchange fees. The letters are dated May 23 and demand the information by June 3

The letters were signed by Democrats Richard Durbin of Illinois and Herb Kohl of Wisconsin and Republicans Olympia Snowe of Maine and Arlen Specter of Pennsylvania.

"It is important that Congress fully understands the costs and fees imposed within the credit and debit card systems so we can ensure that these systems will continue to function effectively for all participants," they 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.

Merchants believe that Visa and MasterCard are colluding to set interchange fees much as cartels can fix prices.

Earlier this year, Rep. John Conyers, chairman of 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.

In the letters to the heads of Visa and MasterCard Worldwide, the senators said they assumed the fees are for a variety of costs, including data security and hedging against risk.

"However, it is unclear how much of the amount collected in interchange fees is devoted to covering such costs, and how much is used to other purposes such as marketing, rewards programs that benefit certain cardholders and issuer profit," they said.

The senators cited a third-party analysis that estimated about 13 percent of collected interchange fees are used to pay for the processing costs and the majority is used for reward programs, issuer profits and other unspecified costs.

(Editing by Gary Hill)