The settlement, if approved by a judge, would resolve dozens of lawsuits filed by retailers in 2005. The card companies and banks would also allow stores to start charging customers extra for using certain credit cards in an effort to steer them toward cheaper forms of payment.
The settlement papers were filed on Friday in Brooklyn federal court.
Swipe fees - charges to cover processing credit and debit payments - are set by the card companies and deducted from the transaction by the banks that issue the cards, essentially passing on the cost to merchants, the lawsuits said.
The proposed settlement involves a payment to a class of stores of $6 billion from Visa, MasterCard and more than a dozen of the country's largest banks who issue the companies' cards. The card companies have also agreed to reduce swipe fees by the equivalent of 10 basis points for eight months for a total consideration to stores valued at about $1.2 billion, according to lawyers for the plaintiffs.
The deal calls for merchants to be allowed to negotiate collectively over the swipe fees, also known as interchange fees.
Merchants would also be required to disclose information about card fees to customers, and credit card surcharges would be subject to a cap, according to the settlement papers. Surcharge rules would not affect the 10 states that currently prohibit that practice, which include California, New York and Texas.
An additional $525 million will be paid to stores suing individually, according to the documents.
"This is an historic settlement," said Bonny Sweeney, a lawyer for the plaintiffs. The settlement "will help shift the competitive balance from one formerly dominated by the banks which controlled the card networks to the side of merchants and consumers," said Craig Wildfang, who also represented the plaintiffs.
Noah Hanft, general counsel for MasterCard, said the company believed its interests were "best served by an amicable resolution" of the case. Visa Chief Executive Officer Joseph Saunders said the settlement was in the best interest of all parties and did not expect the settlement to impact its current guidance.
Not everyone was pleased with the proposed settlement, however. One class plaintiff, the National Association of Convenience Stores, rejected the settlement in a statement on Friday from its president, Tom Robinson, who is also president of Robinson Oil Corp.
"Not only does the proposed settlement fail to introduce competition and transparency, it actually provides Visa and MasterCard with the tools to continue to shield swipe fees from market forces," Robinson said.
The proposed considerations are a far cry from the $50 billion in swipe-fees paid each year by U.S. retailers, he said.
The American Bankers Association, a trade group whose members include the bank defendants, said retailers, not consumers, stood to gain the most from the proposed settlement.
"Big-box retailers will likely seize this opportunity to ask Congress for even more handouts," said ABA President Frank Keating in a statement, referring to the Durbin amendment passed by Congress in 2010 limiting debit-card swipe fees - a move that banks say resulted in an $8 billion windfall for retailers.
"The legal process worked and should send a signal to Congress that it is wrong to pick winners and losers in a complex dispute between two industries," the Electronic Payment Coalition, which represents payment networks, said in a statement.
The plaintiffs charged that Visa and MasterCard colluded directly and indirectly through the issuing banks to keep merchants from finding ways to mitigate credit-card costs.
Plaintiffs in the case include supermarket chain Kroger Co, pharmacy chain Rite-Aid Corp and shoe retailer Payless ShoeSource, as well as trade associations such as the National Association of Convenience Stores, National Grocers Association and the American Booksellers Association.
The National Retail Federation, a trade group representing retailers, said that "the test will be whether the injunctive relief is meaningful. Unless it is, the card market will stay broken and neither merchants nor their customers will achieve a long-term benefit."
A number of banks that issue Visa and MasterCard cards, including JP Morgan Chase & Co, were also named as defendants in the lawsuit, along with Visa and MasterCard's payment networks.
A spokeswoman for Bank of America NA said it believed the terms of the settlement were fair. JP Morgan declined to comment. Citigroup Inc acknowledged its role in the deal and declined further comment.
A spokesman for Wells Fargo said the company was pleased to put the matter behind it.
An estimated 7 million retailers will be affected by the settlement, according to lawyers for the plaintiffs.
Visa and MasterCard have been plagued by legal problems over their payment-card policies for the last decade. In 2003, the companies paid a combined $3 billion to settle a lawsuit by stores over their "honor all cards" policies, which tied acceptance of credit to debit cards.
The U.S. Department of Justice brought and settled a civil antitrust suit against Visa and MasterCard in 2010. As part of the consent decree, the companies agreed to drop certain policies that kept stores from steering their customers to cheaper forms of payment.
But the decree left intact policies that prohibit stores from charging customers more when they use certain payment cards, according to a July 2011 court filing from plaintiffs.
The defendants denied that any collusion took place.
Visa said its share of the settlement is $4.4 billion, and Mastercard said its share is $790 million.
In December, Visa announced it set aside an additional $1.57 billion to cover the cost of a potential settlement in the case, bringing its litigation reserve balance to $4.28 billion, according to a regulatory filing. MasterCard in the fourth quarter of 2011 recorded a $770 million pretax charge, as an estimate of its potential liability in the case, a filing with the U.S. Securities and Exchange Commission showed.
MasterCard said in a statement that it expected to incur an additional $20 million pre-tax charge in its 2012 second quarter financial statements to cover its portion of the settlement.
Visa and MasterCard together accounted for more than 80 percent of U.S. credit and debit card purchases by volume in 2011, according to data from the Nilson Report, a California trade publication.
Albert Foer, president of think-tank the American Antitrust Institute, said that the settlement should create more transparency for consumers at the cash register. Because merchants had been forbidden from charging customers extra for costlier payment forms, they often built that cost into the retail price, he said.
While it may not lead to lower prices, "it gives the consumers some choice and it should ultimately mean a better deal for everybody," Foer said. "In the longer run, it should help keep retail prices under better control."
It may also be the last time retailers are allowed to take Visa and Mastercard to court over interchange fees. The proposal provides for extensive litigation releases that would keep stores that join the settlement from suing over a wide range of issues relating to fees and anti-steering restraints.
The case is In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York, no. 05-1720.
(Reporting by Jessica Dye; editing by Bernard Orr, Andre Grenon and Carol Bishopric)