A heated battle over the credit card fees charged to merchants has united two eternal foes.

Lobbyists for banks and credit unions, who rarely agree on an issue, held joint meetings on Capitol Hill in recent weeks to fight legislation that would rein in so-called interchange fees — a bane to retailers and a crucial source of revenue for many banks.

The credit unions have locked arms with such natural enemies as the American Bankers Association , the Financial Services Roundtable and the Independent Community Bankers of America to fight the legislation, which they say is tantamount to imposing government price controls on a thriving market.

Interchange fees are levied on merchants every time a customer uses a credit or debit card to make a purchase. Set by the major credit card companies, Visa Corp. and MasterCard Inc. , they average 2 percent of the purchase price.

They are paid to card issuers via the merchant’s bank.

The retailers argue the market is broken, noting that, with more than 80 percent combined market share, Visa and MasterCard have too much power to set the rate.

“There’s no transparency and there’s no negotiation,” said Mallory Duncan, the chairman of the Merchants Payments Coalition.

Retailers complain that the fees are eating away at their profits and imposing hidden costs on consumers. They claim that, on average, families paid more than $350 in interchange fees in 2006.

A coalition of retail trade groups — representing convenience stores, chain drug stores, gas stations and supermarkets — won a major victory with the introduction of legislation to curb the fees by House Judiciary Committee Chairman John Conyers Jr. (D-Mich.) and Rep. Chris Cannon (R-Utah). On Thursday, the panel will hear testimony on the bill.

The legislation would require Visa and MasterCard to negotiate with a coalition of retailers on a fee they both can live with. It that fails, a three-judge panel appointed by the Federal Trade Commission and the Justice Department will step in and decide between each party’s final offer.

Merchants also bemoan the proliferation of cards that carry higher rates because, if they accept a major credit card brand, they are required to accept any card carrying that label. “Card usage and fees have gone up so much … it’s difficult for us to get control over what it’s going to cost us at the register,” said John Motley, the senior vice president of government affairs at the Food Marketing Institute , a member of the merchants’ coalition.

Thursday’s hearing comes as credit card companies have come under fire from Democrats for practices affecting consumers. The merchants are trying to capitalize on this negative publicity, arguing that the credit card companies’ unyielding stance toward cardholders mirrors their treatment of merchants on interchange.

“There is so much hate toward credit cards these days … it’s creating a perfect storm [for credit card companies],” said Christy Moran, a spokeswoman for the merchants’ coalition.

The House Energy and Commerce Committee and the House Judiciary Committee Antitrust Taskforce have both held hearings on interchange in the past two years.

Sen. Dick Durbin (D-Ill.), the majority whip, is drafting a bill similar in concept to the Conyers-Cannon legislation and hopes to find a Republican co-sponsor, according to his spokesman, Max Gleischman.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) has tucked a provision authorizing a study of interchange fees into his legislation to crack down on credit card practices.

Coalitions representing the merchants and the credit card issuers will bombard Capitol Hill this week with print ads in various congressional publications.

At Thursday’s hearing, the merchants are likely to point out that the U.S. has some of the highest interchange fees — they ballooned from $16 billion in 2001 to $42 billion in 2007. For businesses like supermarkets and convenience stores, which operate with extremely thin margins, the interchange fees are often equal to or exceed profits.

“Even the largest retailers have an extremely hard time,” Duncan said.

Some countries have acted to rein them in. For example, Australia’s parliament in 2004 voted to cap the fees.

Earlier this year, the European Commission began an antitrust probe of the interchange fees set by Visa Europe Ltd. Last year, the commission ruled MasterCard Inc.’s cross-border interchange-fee structures illegal.

But the major card companies and their bank allies warn that capping the fees will only dampen innovation in the industry and force issuers to yank back perks for consumers.

They are touting a study funded by MasterCard that concluded that Australia’s caps resulted in higher annual fees and reduced awards programs for cardholders. It also found that merchants did not pass on the savings from the lower fees to consumers.

Banks argue the interchange fee is a cost of business that must be worth paying or else merchants wouldn’t accept credit cards. They note the benefits flowing to merchants when customers use credit cards — as compared to checks — such as timely payment, protection against fraud, reduced cash-handling expenses and the ability to operate globally.

They also point out studies showing that consumers spend as much as 20 percent more when they use a credit card versus other forms of payment.

“Merchants have reaped huge benefits by accepting credit cards, locally, around the globe, and on the Internet,” said Scott Talbott, a senior vice president for government relations at the Financial Services Roundtable.