WASHINGTON — As the fight over card interchange legislation heats up in Congress, credit union staff and volunteers may find themselves awash in conflicting claims about the source of noninterest card income. To provide a greater understanding, Credit Union Times is providing a primer on some of the card interchange issues.

First, the most basic debate over who actually pays card interchange must be clear. Retail groups lobbying the issue often claim that card interchange is a "hidden tax" on consumers that retailers must pay to the card brands. Actually, retailers don't pay card interchange to the card brands. They negotiate the rate they will pay with the financial institution or card processor who enables them to accept card payments and pay the "merchant discount" rate, which includes interchange among other things. This rate is of the same sort of cost of doing business that a merchant might pay as a cost for accepting either cash or checks, the card brands contend.

Further, a 2005 report from the Aite Group, a well-known financial consultancy, pointed out that the cost of card interchange is only one part of an overall card fee structure, which it dubbed the merchant service charge. When compared at this broader, MSC level, Aite contended, merchants in the U.S. pay the same overall rate as they do in Britain and one of the lowest overall rates in the world, 1.55%. Only Denmark and France have lower overall MSC rates, Aite said.