A high-profile battle over how much merchants – and ultimately consumers – pay to use credit cards goes to a long-awaited hearing in Ottawa Tuesday.

The federal competition watchdog is alleging that “anti-competitive” behaviour by Visa and MasterCard means Canadians pay $5 billion a year in hidden credit card fees -- among the highest in the world.

“Visa and MasterCard's anti-competitive behaviour hurts businesses and consumers alike,” Melanie Aitken, Commissioner of Competition, said in December 2010 when the bureau referred the case to the federal competition tribunal.

The bureau wants the tribunal to strike down a credit card company rule requiring merchants who agree to accept one Visa or MasterCard credit card to accept all of them, including premium cards that come with higher merchant fees.

It also wants to strike down a rule that adds a fee to consumers who choose to use a credit card.

The Retail Council of Canada said it “applauds” the bureau for tackling the issue, which it hopes will give merchants more negotiating power with card issuers.

The Consumers Association of Canada, however, said any move to let retailers pick and choose which cards to accept would be a “disaster” for consumers. “You’ll walk into a store not knowing whether they’ll take your card or not,” said association president Bruce Cran.

Cran also opposes any move to allow retailers to levy a surcharge on certain premium credit cards, a practice that in Australia led to higher costs for consumers and lower benefits, such as rewards programs, he said.

The credit card companies have said they will fight the bureau.

The competition bureau alleges the restraints on merchants result in higher prices for all consumers, whether they pay by cash, cheque, debit or credit, because merchants pass along some or all of the costs.

Visa and MasterCard processed more than 90 per cent of all Canadian credit card transactions in 2009, representing over $240 billion in purchases, the bureau noted.

Canada has among the highest credit card fees in the world, the bureau also said.

Many countries have taken steps to reduce the fees paid by merchants, the bureau said.

Canadian merchants that accept Visa and MasterCard credit cards must pay a fee ranging between 1.5 and 3 per cent or more of each purchase, nearly twice as much as their counterparts pay in Europe, New Zealand and Australia, but slightly less than in the United States, the bureau said.

In comparison, debit card transactions in Canada cost merchants a flat fee of just 12 cents, the bureau said.

For example, a 3 per cent credit card fee on a $400 set of snow tires comes to $12, but on a debit card, the fee on the same purchase is just 12 cents, the bureau said

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The bureau is challenging Visa and MasterCard's rules under the price maintenance provisions of the Competition Act.

The bureau launched its investigation in response to complaints by merchants and their associations and initiated a formal inquiry in April 2009.