Merchants and retailers would be able to negotiate with banks to reduce costs associated with credit card purchases, according to legislation introduced on Thursday by lawmakers in the U.S. House of Representatives.

The measure, called the Credit Card Fair Fee Act, focuses on the so-called interchange fee that restaurants, service stations and other stores pay banks for credit card-related purchases.

Merchants and some lawmakers have complained that merchants and retailers have been blocked from being able to negotiate a fee structure with credit card networks Visa Inc and MasterCard Inc, whose members are banks.

Visa and MasterCard set the fee structure and control almost three-fourths of the volume of transactions on general purpose cards. American Express Co and Discover Financial Services have their own systems.

Store owners and retailers have also complained that banks collude to set the fee structure and block them from being able to negotiate lower fees, even going as far as calling the practice anti-competitive.

Critics have said those fees are passed on to consumers.

Visa and MasterCard have said merchants and retailers do have the opportunity to negotiate lower fees.

This legislation will give merchants a seat at the table in the determination of these fees, said House Judiciary Committee Chairman John Conyers in a statement.

It is not an attempt at regulating the industry and does not mandate any particular outcome. This bill simply enhances competition by allowing merchants to negotiate with the dominant banks for the terms and rates of the fees.

Conyers and co-sponsor Representative Bill Shuster, a Pennsylvania Republican who is not a committee member, introduced the bill.

When Congress passed the sweeping credit card reform bill last month, which is expected to squeeze profits, banks breathed a sigh of relief that the interchange fee structure at least would be left alone.

If the new bill were enacted, it would be another setback for banks and credit unions seeking to restore profits and shore up balance sheets weighed down by toxic assets.

Any time you cut out interchange fees, it's really detrimental to credit unions because we have smaller economies of scale, unlike the larger issuers, said Eddie Ambrose, associate director of legislative affairs for the National Association of Federal Credit Unions. It'll adversely affect us more.

Last year interchange fees rose to about $48 billion, up from $42 billion in 2007. Fees in 2006 were about $36 billion. Interchange fees averaged about 1.75 percent of total purchases. Estimates range from 1.6 percent to more than 2 percent.

Under the bill, merchants and retailers would be allowed greater access to negotiations with banks to establish rates and terms, while an antitrust attorney from the Department of Justice would be present at the talks.

Unlike last year's bill, it wound not set up a three-judge panel whose mission would be to arbitrate arguments between merchants and banks.

A provision in last year's bill to require merchants to pass the savings along to consumers was also not in this year's version.

The Electronic Payments Coalition, which represents payment card networks and financial services companies, expressed opposition to the bill and criticized the motivation of merchants.

This legislation is an attempt by giant retailers to make consumers pay for one of their business expenses -- the cost of accepting credit and debit, the group said in a statement.

(Editing by Gerald E. McCormick)