The body has filed an application with the Competition Tribunal in a bid to "strike down" the rules imposed on merchants by the pair, which between them processed more than 90% of all credit card transactions by Canadians in 2009, representing over C$240 billion in purchases.

The rules prohibit merchants from encouraging consumers to consider lower cost payment options like cash or debit, and stop them from applying a surcharge to a purchase on a high cost card. Further, once a merchant agrees to accept one of Visa or MasterCard's credit cards, they must accept all of them, including those that impose significant costs.

The watchdog argues that the rules have effectively eliminated competition between Visa and MasterCard for merchants' acceptance of their credit cards, resulting in increased costs to businesses and, ultimately, consumers. Merchants in Canada pay an estimated $5 billion annually in hidden credit card fees.

Canada has among the highest credit card fees in the world, with merchants that accept Visa and MasterCard paying a fee ranging between 1.5% and three per cent a purchase, nearly twice as much as counterparts in Europe, although slightly less than in the US, says the Bureau. In contrast an Interac debit transaction has a flat fee of around 12 cents.

Visa and MasterCard both say that the move could hurt consumers, allowing retailers to impose surcharges and reduce choice.

Says Visa: "Visa is disappointed that the Canadian Competition Bureau has taken an anti-consumer position by filing a lawsuit against Visa to overturn policies that protect consumers from being punished by large retailers who seek to impose surcharges and take away consumer choice at the checkout counter. We intend to vigorously defend our pro-consumer provisions."

Bruce Cran, president, Consumers Association of Canada, also hit out at the Bureau, saying: "The Consumers Association of Canada is extremely disappointed in today's decision by the Competition Bureau to challenge two critical consumer protection measures. This is a disappointing day for Canadian consumers. The Competition Bureau appears to have abandoned our interests in favour of the well-organized merchant lobby."