SANTA FE, N.M. - A debate among representatives of merchants, payment networks, and issuers about whether interchange should be regulated started out with an academic tone but soon turned vitriolic.
Last week, during a morning session of a conference here organized by the Federal Reserve Bank of Kansas City, four economists argued over some details but basically agreed that the system is working just fine.
Then at lunchtime, Lloyd Constantine spoke.
The head attorney for the merchant lawsuit against Visa U.S.A. and MasterCard International criticized the Kansas City Fed for not inviting "a single U.S. merchant speaker, and none from the PIN debit networks," while inviting, by his count, seven economists and consultants who had done paid work for Visa.
"There is no explanation for this imbalance," Mr. Constantine said.
He called the credit and debit card industry "a failed market" and called on the Federal Reserve Board to "step up to the plate" by enacting regulations that would disallow interchange fees of PIN debit networks.
William Sheedy, Visa's executive vice president of interchange strategy and fees, said that its interchange is cheaper than American Express Co.'s, and that U.S. merchants have benefited from competition among the payment brands.
"We believe business levers are better than hiring lobbyists and hiring class-action attorneys," Mr. Sheedy said. "Total interchange has grown because of usage" more than it has because of rate hikes, which Mr. Sheedy said amounted to just 1.86% annually over the last 15 years. "Merchants paint a misleading picture."
Susan J. Webb, a JPMorgan Chase & Co. executive vice president, called interchange a great value. "Merchants pay the freight, but they get benefits from increased sales," she said.
For example, fast-food restaurant customers who pay with cash spend an average of $5, compared with $7 for customers who pay with a credit card, she said.
Mr. Sheedy said that lower interchange rates would never make their way to consumers, because merchants would pocket the difference.
Dennis Bouchard, a senior vice president of Wal-Mart Stores Inc., bristled at that argument. "We are looking for any opportunity to lower costs and pass them along to the consumer," he said. "Your suggestion that there is no evidence of lower costs is offensive, particularly to us."
He joked that Mr. Sheedy probably did most of his shopping in trendy boutiques in San Francisco, where Visa is based, and never stepped inside a Wal-Mart store.
On Friday, Noah J. Hanft, MasterCard's general counsel and corporate secretary, derided Mr. Constantine as a class-action lawyer "knocking on doors [and] making phone calls searching for retailers to bring an interchange lawsuit."
Mr. Constantine's motivation is "pure and simple money-lust," Mr. Hanft said.
Interchange is essential to the payment system, he said. "Interchange has provided the equilibrium to make the four-party payment system work."
He also countered merchant claims that the interchange increases have been unfair. "Interchange has always been set to maximize the output of the payments system, meaning more cards, more merchants, and more transactions."
Merchants' complaining "actually has nothing to do with the mechanism of interchange but rather with their desire to cut costs," Mr. Hanft said.
In his speech, Mr. Constantine had called for a "hero" to take on interchange in the courts.
Mr. Hanft quipped, "We all know who he thinks that will be."
