WASHINGTON - Citing the landmark break-up of telephone services giant AT&T in the early 1980s, the nation's merchants called on Congress this week to break what they called a stranglehold over interchange fee-setting by Visa USA and MasterCard Worldwide.

"The system is broken and it needs to be fixed," said William Douglass, owner of a Texas convenience-store chain and long-time foe of the two card giants, during a July 19 hearing before the Senate Judiciary Committee.

With the congressional session nearing an end, it is too late for Congress to begin action on the issue this year; but several sources on Capitol Hill indicated the issue will return next year when a new Congress convenes.

The hearing comes at a bad time for Visa and MasterCard. In Europe, the European Union has found evidence of price-fixing on interchange fees by the two companies.

This week's hearing, representing Congress's first foray into the long-festering war over interchange, featured many characters who are no strangers to legal tug-of-war with the card companies. Many have squared off against Visa and/or MasterCard in the courtroom over the last five years. Characters included Douglass, former head of the government relations committee for the National Association of Convenience Stores; Stephen Cannon, a lawyer who represented merchants in the Wal-Mart case; and Timothy Muris, former head of the Federal Trade Commission who now represents Visa in the antitrust cases.

U.S. merchants accused the two companies of violating antitrust laws by fixing prices that garner $30 billion annually in interchange fees. Cannon said what Visa and MasterCard do to set fees in the growing U.S. market is "illegal price-fixing, plain and simple."

Visa and MasterCard control 80 percent of the U.S. card market. Drawing a parallel between Visa and MasterCard's duopoly and the '80s landmark AT&T case, Cannon argued that Congress does have the authority to intervene.

Earlier this year, the Federal Reserve concluded that it does not have the legal authority to intervene in the interchange market.

Douglass, who owns 15 convenience stores outside Dallas, said 60 percent of all gas sales at his stores are made via credit or debit. His stores each reported approximately $44,000 in profit last year, and each paid almost the same in interchange fees - about $42,000, a 33-percent increase from 2004.

"I can't even get a copy of the rates," Douglass said.

The average U.S. consumer paid $231 in interchange fees for card purchases last year, Douglass said.

Kathy Miller, who runs a mom-and-pop grocery in Elmore, Vt., said her small country store is forced to accept cards for transactions, but that acceptance cuts into her profits.

"If they buy a candy bar, I might as well just give the candy bar to them," she said. "It just doesn't pay."

But Visa and MasterCard said they're dominant market-share does not equate to price-fixing power. Joshua Floum,  general counsel for Visa, said competition in the payments market from American Express, Discover, First Data, Debitman, PayPal, Google and Checkout, to name a few, prevents price fixing.

"There's plenty of choices," he said.

Card companies argue that by dragging Congress into the fight merchants hope to have rates set by the federal government - which is happening in other countries, including Australia and Canada. (Read also, Interchange wars: Merchants tug networks for change.)

Card company executives said rate-setting in Australia has resulted in higher fees and higher interest payments for consumers. Cannon disputed that notion, saying Australian participants are charged a third of what merchants are charged in the United States. He also said the government caps have driven bank and credit union issuers into a competitive frenzy on interest rates to attract new customers.

But Cannon stressed that merchants are not asking for government fee-setting.

"All our merchants have asked for is for Congress to look at the problems and review the situation," he said.