*Would affect fees merchants pay on debit card transactions

Stocks | Regulatory News | Bonds | Global Markets | Financials

* ‘Grave concerns’ the measure would harm consumers

* Banks, credit unions also lobby to defeat the measure

WASHINGTON, June 16 (Reuters) – A bipartisan group of 131 lawmakers from the U.S. House of Representatives on Wednesday called for elimination of a financial reform amendment that seeks to reduce the interchange fees merchants pay on debit card transactions.

In a letter to the bipartisan House-Senate conference committee working to finalize regulatory legislation, 71 Democrats and 60 Republicans expressed “grave concerns” that the measure would harm consumers, community banks and credit unions if adopted as law.

“We strongly urge members of the conference committee and the leadership of our respective parties to object to the Senate language on interchange fees in the final conference report,” said the letter, released by Democratic Representative Debbie Wasserman Schultz of Florida and Republican Kenny Marchant of Texas.

The letter coincides with an intensive lobbying effort by banks and credit unions to defeat the measure, which would reduce interchange fees that currently produce billions of dollars in revenues for financial institutions.

The amendment would require the Federal Reserve to set interchange fees according to underlying costs. Critics of the current unregulated system say card networks such as Visa Inc (V.N) and MasterCard Inc (MA.N) impose artificially high interchange fees, forcing merchants to raise prices or face losing profits.

Visa and MasterCard, which control 80 percent of worldwide electronic transactions, pass interchange fee revenue on to card-issuing banks within their networks.

Authored by Sen. Richard Durbin, an Illinois Democrat, the amendment was adopted as part of the Senate financial reform bill. A conference committee of 43 Democrats and Republicans is now working to merge the Senate language and a House bill into final legislation that can be signed into law by President Barack Obama.

But the final bill must first be approved by both the House and Senate, and industry lobbyists hope to persuade conferees that the legislation could run into trouble if it contained the amendment.

The amendment is expected to come before the conference committee for resolution next week.

Lawmakers warned in their letter that the amendment’s adoption could raise costs for banking products and credit cards and a loss of protection against fraud and identity theft.

The amendment exempts most banks and credit unions by targeting only institutions with $10 billion or more in assets. But smaller institutions have joined the lobbying fray anyway, fearing they could suffer knock-on effects if large banks suddenly lost major revenues. (Reporting by David Morgan, editing by Matthew Lewis)