By John Poirier

WASHINGTON, June 24 (Reuters) - Legislation that would create a panel to determine the rates and terms of credit card transaction fees may harm consumers, according to a letter obtained by Reuters on Tuesday expressing the views of a top U.S. antitrust official.

Rep. John Conyers, chairman of the House Judiciary Committee and Chris Cannon, a Republican on the panel, introduced a bill earlier this year that would create a panel to give retailers and merchants more power to negotiate interchange fees.

"This bill may actually harm ... consumers, not benefit them," Keith Nelson, principal deputy assistant attorney general said in a letter to Rep. Lamar Smith, the top Republican on the committee, who requested the department's view on the Credit Card Fair Fee Act legislation.

"Credit card networks forced by regulation to collect less from merchants may well respond by charging more to cardholders in card fees, or reducing card rewards programs and other features that are attractive to consumers," Nelson wrote in a letter dated June 23.

The comments by the Department of Justice represents the latest support for credit card companies, Visa Inc (V.N: Quote, Profile, Research) and MasterCard Inc (MA.N: Quote, Profile, Research), in their long-standing battle with merchants seeking leverage to reduce their transaction payments, which increased to $42 billion last year from $30 billion in 2006.

For years the issue of competition has been at the center of this battle, amid complaints from local stores, gas stations and other retailers that they have little power to negotiate interchange fees.

Sen. Richard Durbin, an Illinois Democrat, also introduced a bill aimed at giving retailers more negotiating ability. He has said there is no "meaningful competition or negotiation" when interchange fees are established.

Visa and MasterCard are the dominant electronic payment players, with 70 percent of the market.