Credit card companies Visa International and MasterCard have taken legal action against Australia's central bank over plans to cut hidden fees and allow retailers to pass on costs to consumers.

The Reserve Bank of Australia (RBA) wants to save consumers about A$400m (�140m, $219m) by cutting 39% off inter-bank handling fees on each others credit cards transactions.

The ruling could also set a precedent for European and US regulators to make similar changes.

"What they're introducing is wrong and sets precedents that we have not found very compatible with the way we think," Visa International Chief Executive Malcolm Williamson said.

The company is already fighting anti-trust lawsuits in the US.

Smaller rival credit card issuers American Express and Diners Club are exempt from the fee cut.

Credit rating

Reforms to the Australian credit card rules would also mean that retailers could charge customers more for purchases on credit, passing on the handling fees to consumers, and issue their own cards.

Visa is worried that its card holders might then choose to pay with cash instead and lose customers.

The other main losers from the reforms, the major banks, have ruled out becoming involved in the action.

Profit at Australia's four leading banks would be cut by an estimated A$130m if the RBA succeeds with its reforms.

Visa argues that the Reserve Bank does not have jurisdiction and has acted beyond its powers under the Payments Systems (Regulation) Act.

The RBA and the government have said they are disappointed that Visa had decided to take legal action.

The two companies appeared in the Federal Court in Sydney and a six-week trial is expected to be set for May 2003.