(May 6, 2010) The battle over interchange regulation continues to heat up, with the introduction this week of amendments to financial regulatory reform legislation pending in the U.S. Senate that would target the controversial fees charged to merchants.

The three amendments, sponsored by Sen. Dick Durbin, D-Ill., and co-sponsored by Sens. Patrick Leahy, D-Vt., and Mary Landrieu, D-La., differ from earlier interchange-regulation legislation. Instead, they mirror The Electronic Parity Act of 2010, legislation introduced this week in the U.S. House by Rep. Peter Welch, D-Vt.

Under one amendment, the Federal Reserve would be required to establish “reasonable and proportionate fees” for debit cards based on the cost of processing transactions. Banks with assets under $1 billion in net assets would be exempt from the provision.

A second amendment would allow merchants to set either a minimum or maximum credit card purchase amount and to offer a discount or other benefit for consumers paying by cash, check, or other less expensive form of payment.

The third amendment would mandate that the federal government be charged the lowest interchange rates available.

In addition, Sen. Tom Harkin, D-Iowa, introduced an amendment that would cap fees at automated teller machines at 50 cents. That amendment also requires the consumer financial protection agency, a provision under consideration in the reform bill, to force ATM operators to limit fees to the cost of providing the service.

The proposed amendments promptly drew fire from interchange proponents. The Electronic Transactions Association on Wednesday sent out an e-mail urging members to speak out against the amendments, which it says could “have devastating consequences for the electronics payments industry.”

In the alert, ETA chief executive Carla Balakgie said the ETA “remains strongly opposed to any attempt to create a government regulator or to legislate rate-setting methods for the interchange system.”

Whether the amendments will be part of the final financial regulatory reform legislation is difficult to predict, says Craig Sherman, vice president of public relations for the National Retail Federation. The NRF on Thursday urged Vermont Gov. Jim Douglas to sign a similar bill passed this week by the Vermont legislature.

“Over the past couple of years, the atmosphere on Capitol Hill has been very receptive to steps that would bring the abuses of the financial services industry under control, and these certainly fall into that category,” Shearman says. “Right now, with this bill working its way through Congress in the final stages is the most conducive atmosphere we’ve seen towards addressing these issues.”