Analyst: Interchange Rules Could Hurt Processors

BOSTON (AP) — Legislation seeking to tighten rules on so-called "interchange fees" levied by credit card companies could hurt transaction processors like Total System Services Inc. and First Data Corp. if it becomes law, a Morgan Keegan & Co. analyst said in a research note Friday.

The legislation would yield a mixed bag of results for various other players in the credit card industry, with potentially significant effects on payment networks like Visa Inc. and MasterCard Inc. as well as "acquiring banks" like Global Payment Systems Inc., analyst Robert Dodd said.

"While we believe the prospect for interchange regulation is real — though far from certain — we believe the impact on the sector would be mixed, generally positive for acquirers and modestly negative for networks," Dodd wrote.

U.S. Reps. John Conyers, D-Mich., and Bill Shuster, R-Pa., on Thursday introduced the Credit Card Fair Fee Act. Conyers introduced a similar bill in May 2008, but it died in a committee.

The bill proposes to require negotiation between banks and merchants over interchange fees, which a merchant's bank — also known as the acquiring bank — pays a customer's card-issuing bank for electronic transactions. The card-issuing bank deducts the interchange fee from the amount it pays the acquiring bank. The acquiring bank then pays the merchant the transaction amount, minus charges including the interchange fee. Fees are set by card networks like Visa and MasterCard but are collected by the merchant's bank.