Credit unions use interchange revenue to finance card programs and to ensure that their members have access to the same services provided by other, much larger financial institutions - and typically more affordable. If interchange revenue were reduced or eliminated, credit unions would be forced into the impossible decision of raising fees for our members - or eliminating our card programs altogether.
This BusinessWeek article has a review with opinions of this legislation from merchants' point of view. In the article it was noted that debit card transactions are also expensive for merchants. Here's an excerpt:
We discount 3% for cash sales to try to recover the cost on credit cards. The problem we’ve run into now is more customers use debit cards than cash. Debit cards are considered a 'cash transaction' so we really get hit hard on those charges. We are debating now whether to consider not giving a discount on a debit card. That would antagonize the customers though, so we’re caught in a catch 22.
I wonder how much reward checking accounts have increased the use of debit cards. Before I signed up for a reward checking account, I always just used credit cards.
I have more discussion on interchange fees and reward checking accounts in this July post.