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Interchange legislation U.S. Rep. John Conyers, D-Mich., introduced last week (CardLine, 6/5) could negatively affect card processors such as Total System Services Inc. and First Data Corp., according to a research note published last week by investment firm Morgan Keegan & Co. Inc. The legislation, which would remove antitrust hurdles to let merchants enter into collective-bargaining agreements with banks when setting interchange rates, would lower issuer fee income, Robert Dodd, managing director at Morgan Keegan and author of the research note, tells CardLine. In response to lower fee income, issuers may add or increase annual fees for consumer credit cards. Between 2004 and 2005, the Reserve Bank of Australia mandated a 40-basis-point reduction in interchange, and the most-visible response to the change was an increase in annual card fees, Dodd says. Should issuers in the United States add or increase annual card fees, consumers may respond by reducing the number of credit cards in their wallets. Fewer cards overall would mean less per-card income for processors, says Dodd. "If there was a reintroduction of annual fees, on a large scale, there would be a reduction of the number of cards," he says. "For processors like First Data or TSYS, where a large chunk of their revenue comes from per-account per-month fees" related to account servicing, they would see an income reduction, says Dodd. First Data is aware of the interchange legislation and is "analyzing it," says a company spokesperson. A TSYS representative did not return requests for comment by CardLine deadline.

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