Claiming that unnecessarily high credit card transaction fees discriminate against small merchants and cost American families an average of $232 per year, a coalition of convenience stores, drug stores and community grocers has filed a class action suit against major banks and credit card associations.

The antitrust, class-action lawsuit charges that Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, J.P. Morgan, Chase, Fleet Bank, Capital One, and other banks are engaging in collusive practices by setting credit card interchange fees at "supracompetitive" levels.

The suit's plaintiffs -- the National Association of Convenience Stores (NACS), the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA) and the National Cooperative Grocers Association (NCGA) -- represent hundreds of thousands of drug stores, convenience stores and food stores across the United States that accept Visa and MasterCard as a form of payment.

So-called "interchange fees" are the largest component of credit card fees and have a significant impact on American consumers, who are affected by U.S. interchange rates that are among the highest in the world.

Interchange rates cost the average American household approximately $232 a year in 2004, the lawsuit charges.

When consumers purchase goods or services with a credit card, the payment is processed through the merchant's bank and the bank that issued the consumer the credit card. The issuing bank charges the merchant's bank a fee to process the transaction. The merchant's bank then adds its own fee for processing the transaction, and passes on both of these fees -- collectively known as interchange -- to the merchant.

"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, CEO of the National Association of Convenience Stores.

"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," Armour said.

Interchange fees are meant to cover the cost of processing a credit card transaction and the risk taken by the issuing bank that the credit will not be repaid. However, the plaintiffs say that both fraud costs and the cost of processing are steadily decreasing, while U.S. interchange rates continue to increase.

Interchange fees are substantially higher in the United States than almost any other industrialized country. Other countries have taken action to address the market problem created by these monopolies. Recent changes in Australia and countries in Europe, for example, have decreased rates from about 0.95 percent to about 0.55 percent.

"Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labor," said Craig Fuller, CEO of the National Association of Chain Drug Stores. "These costs have skyrocketed over the past years even though the costs of credit card transactions for the banks have fallen."

The suit's plaintiffs added they would seek damages and injunctive relief to stop the alleged anticompetitive practices of banks and credit card companies.

"We are not seeking some form of temporary relief; we are looking for long-term reform of the credit card interchange fee system," said John Rector, General Counsel of the National Community Pharmacists Association.

"The current system discriminates against small, independent businesspersons, and there is no basis for that discrimination. We ultimately seek a competitive and fair interchange fee system.

The suit was filed in the U.S. District Court for the Eastern District of New York on Friday by Robins, Kaplan, Miller & Ciresi LLP.