WASHINGTON - The Federal Reserve said last week it won't intervene in the growing market of card interchange fees, now as much as $30 billion a year.

A Fed official said the United States' central bank should not get involved in the conflict going on between the two major card companies, Visa USA and MasterCard International, and the merchants. (Read also, Interchange wars: Merchants tug networks for change.)

The Fed also concluded it doesn't have the legal authority to set interchange rates under the Electronic Funds Transfer Act.

"The Federal Reserve does not currently have the authority to regulate credit card and debit card interchange fees," said Stuart Weiner, a vice president at the Kansas City Fed and author of an interchange-fee study.

Speaking at Washington, D.C.'s Credit Union National Association Payment Systems Conference last week, Weiner acknowledged that the Fed has been asked by various groups to referee the ongoing battle. But, he said, the Fed would only intervene if a crisis or other emergency arises.

The U.S. Justice Department also has no plans to intervene.

"That leaves the courts as the avenue for change," Weiner said. "And it's likely to remain that way for the short-term."

Tom Brown, vice president and senior counsel at Visa, said government rate-setting of interchange fees won't work in the U.S., even as countries like Australia and Canada, where Visa and MasterCard also dominate payment systems, have adopted it.

Brown said Australia's experiment with interchange rate-setting has advantaged the merchants at the expense of the bank-owned networks, like Visa and MasterCard. The government-ordered interchange-fee reduction from roughly 90 basis points to 50, has cut revenue to participating banks and the networks, he said.

"As a result, merchants are paying less for bank-issued cards, and cardholders are paying higher fees and higher finance charges," he said. "Cardholders have lost quite a bit."

Visa favors the current system of rate-setting, because Visa is one of the market's dominant players, running alongside MasterCard, the Fed and, to a lesser extent, American Express and Discover.

But David Balto, a Washington lawyer whose firm is representing merchants in one of the Visa/MasterCard suits, suggested consumers benefit more in the long run from lower interchange fees.

"The consumer benefits are reduced costs to merchants that can be passed along to consumers," Balto said.