NEW YORK (CNNMoney.com) -- The Justice Department filed a lawsuit against Visa, MasterCard and American Express on Monday for allegedly anti-competitive practices that prevent merchants from offering discounts and raise prices for consumers.
At issue are certain fees the companies charge merchants every time a consumer makes a purchase using their credit card, prosecutors said. These "swipe fees" totaled $35 billion last year, according to the Justice Department.
The lawsuit, filed along with seven state attorneys general, alleges that the credit card companies have put in place rules that block sellers from offering consumers lower-cost payment options.
"These restrictive rules restrain competition among credit card networks for merchant acceptance and distort the competitive process," Christine Varney, an assistant Attorney General, said in a statement.
The fees are then passed on to consumers in the form of higher prices, according to the complaint, which was filed in U.S. District Court in Brooklyn.
"We want to put more money in consumers' pockets, and by eliminating credit card companies' anticompetitive rules, we will accomplish that," said Attorney General Eric Holder.
Under the terms of the settlement, which is subject to approval by a federal court, Visa and MasterCard will give merchants more flexibility to offer different, less expensive payment methods to consumers.
MasterCard's general counsel, Noah Hanft, said the consent decree with the Department of Justice "calls for modification of a rule to confirm that merchants may offer a discount for cash and all forms of payment including competing brands, which is precisely what we already permit."
A spokesman for Visa said the settlement was "amicable" and pledged to make "reasonable" changes to its policies.
However, the chief executive of American Express, Kenneth Chenault, said in a statement that the company has "no intention of settling the case."
"We will defend the rights of our card members at the point of sale and our own ability to negotiate freely with merchants," he said.
American Express shares fell 6.5% to close at $39.05.
Consumer advocates cheered the move, saying the rules are unfair and that the credit card companies are gouging merchants and consumers alike.
"This action is long overdue," said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. "It will finally open competition in the card payment market, ultimately leading to lower prices to consumers."
The American Bankers Association issued a statement saying the group would monitor the potential impact of the settlement on banks' ability to offer attractive products.
"For years, retailers have claimed that lowering the costs they incur to accept credit cards will translate to lower costs for consumers," said Kenneth Clayton, general counsel for ABA card policy. "We look forward to seeing whether their newfound pricing authority will actually result in consumer benefit or merely be used to pad their own bottom lines."