By Jessica Dye

NEW YORK, Sept 20 (Reuters) - Retail trade groups on Thursday urged Congress to consider acting to address rising credit card costs for merchants, saying that a record $7.2 billion settlement with Visa Inc and Mastercard Inc does not provide sufficient relief.

"The proposed settlement does nothing to resolve the failures in the electronic payment market and continued congressional involvement in these issues is imperative," nine retail trade associations said in a letter to congressional leaders.

The trade groups, which include the National Association of Convenience Stores, National Grocers Association and National Retail Federation, said the settlement forces them to give up too much, including their right to bring future lawsuits against Visa and Mastercard over interchange fees, in exchange for no meaningful reform.

Under the settlement, which is subject to approval by a federal judge, the groups say Visa and Mastercard will be allowed to continue raising rates indefinitely.

The settlement "is nowhere near a done deal, and we want to make sure Congress doesn't misapprehend this," said Mallory Duncan, general counsel of the National Retail Federation. "If this settlement goes through, the spotlight will be squarely on Congress to fix this broken market."

The settlement, announced in July, would resolve seven-year-old litigation accusing Visa and Mastercard of conspiring with banks to inflate the interchange fees paid by merchants to process payments made by debit or credit cards, known as swipe fees.

Under the deal, merchants would receive a $6 billion payment, as well as a temporary reduction in swipe fees valued at $1.2 billion. In addition, stores could charge customers extra for using credit cards.

The settlement is subject to approval by U.S. District Court Judge John Gleeson in Brooklyn, who will make his decision after soliciting input from the nearly 8 million merchants estimated to be affected by the suit.

Major U.S. retailers, including Wal-Mart Inc and Target Corp, have also voiced opposition to the settlement.

Supporters of the deal, including Visa, Mastercard and several major grocery and drug-store chains like Kroger Co, say it is a reasonable compromise that will create transparency by allowing stores to communicate directly about the costs of processing certain payment cards.

In addition, three Republican members of the U.S House of Representatives - Ed Royce of California, Mike Coffman of Colorado and Jason Chaffetz of Utah - in a letter dated Sept. 14 that was obtained by Reuters, urged their colleagues to resist attempts to use the settlement as leverage for new legislation on credit card fees.

"Congress is not the appropriate venue to fix prices and mediate a fight between two industries, so I encourage you to join us in supporting this important settlement and rejecting attempts to make Congress re-open this issue again," the congressmen wrote.

Royce is a member of the House Financial Services Committee, which oversees banks and consumer credit issues.

A spokesman for Mastercard, Jim Issokson, said it would be up to the judge, not retail groups, to approve or reject the deal. Both Visa and Mastercard say they remain confident the deal is fair and reasonable.

The case is In re Payment Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York, No. 05-1720. For the plaintiffs (co-lead class counsel): Laddie Montague, Merrill Davidoff, Bart Cohen and Michael Kane of Berger & Montague; Craig Wildfang, Thomas Undlin and Ryan Marth of Robins Kaplan Miller & Ciresi; Patrick Coughlin, Bonny Sweeney, David Mitchell, Alexandra Bernay and Carmen Medici of Robbins Geller Rudman & Dowd.

For Visa: Robert Vizas, Robert Mason and Mark Merley of Arnold & Porter.

For Mastercard: Keila Ravelo, Wesley Powell and Matthew Freimuth of Willkie Farr & Gallagher; Kenneth Gallo, Joseph Simons, Andrew Finch and Gary Carney of Paul Weiss Rifkin Wharton & Garrison.

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