VANCOUVER - Visa, MasterCard and the country's biggest banks conspired to fix the fees charged to businesses that accept payments by credit card, according to allegations in a proposed class-action lawsuit.

Mary Watson, a furniture store owner in Vancouver, filed the lawsuit in the Supreme Court of B.C. on behalf of merchants who accept Visa and MasterCard credit cards.

Under the current model, credit card companies and banks charge a fee that varies depending on the type of card the customer uses. Credit cards that collect points and other rewards often charge retailers higher fees.

Greg McMullen, a lawyer working on the case on behalf of the plaintiffs, said the lawsuit seeks to allow businesses to decide which cards they are willing to accept and whether they want to add a surcharge for premium cards.

"It really would be up to the market in the end," McMullen said.

"Merchants would be free to set their own policies and to figure out how they wanted to handle credit cards."

The lawsuit also seeks an injunction blocking the defendants from agreeing with each other to raise, fix or stabilize their fees and a share of the fees charged businesses.

"Obviously some of the fees are totally legitimate, it costs money to maintain these networks and we're not saying there shouldn't be some cost," said McMullen, who noted Canadian merchants paid $5 billion in fees in 2009.

The suit claims the credit card companies and banks conspired to force retailers to accept all of their credit cards -- even if some cards charge higher processing fees than others. It also claims that merchants are prohibited from charging consumers more for transactions paid for with premium credit cards, and are forced to eat the costs themselves.

None of the allegations have been proved in court.

In addition to Visa and MasterCard, named in the suit were Bank of Montreal (TSX:BMO), Scotiabank (TSX:BNS), CIBC (TSX:CM), Royal Bank (TSX:RY), TD Bank (TSX:TD) and National Bank (TSX:NA).

Also named were Desjardins, Bank of America, Capital One and Citigroup.

MasterCard Canada said it was reviewing the lawsuit, but declined to comment further other than it "intends to vigorously defend this action."

Visa Canada also denied the allegations and said it "will be vigorously defending this action."

The Canadian Bankers Association said the rules requiring merchants to honour all cards and that prevent surcharging, which are the basis of the lawsuit, are rules set by the credit card companies -- not the banks.

"The banks have no control over these rules," the association said.

Capital One said Tuesday it does not comment on pending litigation.

The fees charged merchants for accepting credit cards have been a point of friction in recent months. Last year, the credit and debit card industry signed on to a voluntary code of conduct in an effort to help merchants better understand their credit and debit card costs and options.

The new rules give merchants the freedom to choose which card networks they use.

The code also ensures merchants receive a minimum of 90 days notice of any fee increases. Store owners will be allowed to cancel their contracts without penalty following notification of a fee increase. It also states that merchants must agree in writing to new products or services.