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The New York Times reports that four US senators have demanded that Visa and MasterCard senior executives provide them with “detailed costs associated with transactions called interchange fees,” including the “methodologies and specific data” used to establish these rates.

The letter was signed by Democrats Richard Durbin of Illinois and Herb Kohl of Wisconsin and Republicans Olympia Snowe of Maine and Arlen Specter of Pennsylvania. It sets a deadline of June 3 for the information to be provided.

The Times reports that “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.” The Times also notes that “the U.S. credit card industry last year rang up $42 billion in interchange fees.” Retailers complain of a lack of transparency in how these rates are established, and that these escalating rates gobble up an excessive amount of profit.

KC's View:
Hold their feet to the fire, and crank the flames up high. (Anybody want to bring marshmallows?)