updated 9/27/2005 9:45:27 AM ET 2005-09-27T13:45:27

Four merchant associations said Monday they filed an antitrust, class-action lawsuit against Visa USA Inc., MasterCard Inc. and a number of top U.S. banks for allegedly colluding to set credit card transaction fees at anticompetitive levels.

MasterCard and Visa already face a number of retailer lawsuits that claim fees paid on each transaction amount to price fixing, and are designed to stifle competition. Both credit-card associations — valued for their processing networks as much as their brand names — derive most of their profits from the fees.

The latest class-action lawsuit also targets major U.S. banks — such as JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Merchants claim the banks are engaged in collusive practices by setting credit card interchange fees "at supracompetitive levels." Interchange fees are fees banks charge each other to cover the cost of processing a credit card transaction, and are then passed on to consumers.

These fees cost the average American household about $232 last year, according to the merchant associations. In addition, they are substantially higher in the United States than in almost any other industrialized country, the plaintiffs said.

"The credit card interchange system serves as a hidden tax, both on merchants and consumers, and raises the costs of all products regardless of the form of tender," said Hank Armour, chief executive of the National Association of Convenience Stores. "And these credit card interchange fees have rapidly increased over the past several years, despite efforts by individual convenience stores to control these costs or make the competitive market work."

The lawsuit's plaintiffs — who represent hundreds of thousands of retail stores that accept Visa and MasterCard — are seeking damages and injunctive relief to stop the alleged anticompetitive practices of banks and credit card companies. The plaintiffs include the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association, and the National Cooperative Grocers Association.

John Rector, general counsel for the National Community Pharmacists Association, said the plaintiffs are not seeking temporary relief. Instead, the lawsuit aims to bring about "long-term reform of the credit card interchange fee system."

The lawsuit comes as both MasterCard and larger rival Visa USA Inc. contend with a court decision that allows member banks — for the first time — to issue competing card brands of companies such as American Express Corp. and Discover Financial Services, a unit of Morgan Stanley. This opened the door for those companies to file lawsuits against the two credit-card giants seeking unspecified damages stemming from anticompetitive practices.

An unfavorable verdict could cost MasterCard and Visa hundreds of millions of dollars as suits filed under antitrust laws are allowed to seek triple damages.

MasterCard recently unveiled plans for an initial public offering to help reshape its business during a time of unprecedented competitive and legal challenges. Chairman Baldomero Falcones and President and Chief Executive Officer Robert W. Selander said in a letter to member banks that the IPO was in part formulated to address these legal hurdles.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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