Durbin says his Credit Card Fair Fee Act of 2008 would "safeguard consumers and retailers by preventing credit card companies from using their market power to charge unfair fees through an unfair process". Durbin's bill is almost identical to a House version introduced by US House Judiciary Committee chairman John Conyers in March.

Interchange fees currently comprise 90% of transaction fees charged to merchants. The percentage is set by the credit card companies - generally Visa or MasterCard - and averages 1.75% of the total purchase price. In 2006 Visa and MasterCard banks collected more than $36 billion in interchange fees last year, up 17% from 2005 and 117% since 2001. In 2007, the fees amounted to $42 billion.

In a statement Durbin says there is currently no "meaningful competition or negotiation" over the fees.

"Interchange fees need to be fairly and transparently negotiated between the merchants and the credit card companies who represent the banks' interests so working Americans don't get shortchanged," he says.

Under Durbin's bill, retailers would be able to engage in collective negotiations with the providers of electronic payment systems that control least 20% of the market.

If a voluntary agreement cannot be met, a three-judge panel appointed by the Department of Justice and the Federal Trade Commission would impose rates.

Durban says that along with senators Snowe, Kohl and Specte, he wrote to Visa and MasterCard last month requesting documentation detailing the methodology and data used to set interchange fee rates.

But Durbin says "in their response the card companies again failed to adequately explain how they decide what interchange rates to charge".

Merchant groups have welcomed Durbin's legislation. Mallory Duncan, SVP and general counsel of the National Retail Federation, says the introduction of the bill "shows momentum is building in Congress and that both the House and Senate are ready to bring the credit card companies' greed under control".

"We welcome this effort to stop the price-fixing and create a transparent market-based process for credit card interchange fees," adds Hank Armour, chairman and CEO of the National Association of Convenience Stores (NACS). "This legislation is an approach to fix the broken system through a competitive market outcome by allowing merchants a seat at the negotiating table."

Last month MasterCard and others seized upon a report by the Government Accountability Office (GAO) last month that claims a reduction in interchange fees would not necessarily benefit customers.

The GOA report found that federal agencies have reported higher levels of customer satisfaction and improved operational efficiency since accepting credit and debit cards. Some agencies have also attempted to negotiate lower interchange fees, with "mixed success".

The GOA also casts doubts on claims that government moves to cut interchange fees in other countries has benefited consumers.