NEW YORK -- A coalition of retail groups sued the Federal Reserve on Tuesday, claiming the regulator ignored the law by setting too high a cap on the fees that banks can charge merchants for handling debit-card purchases.

The National Retail Federation and other groups claimed in U.S. District Court in Washington that the Fed buckled under pressure from bank lobbyists when it set the cap at an average of about 24 cents per transaction in late June. The previously unregulated fees used to average around 44 cents.

The cap, which took effect Oct. 1, was initially proposed at 12 cents.

American Bankers Association CEO Frank Keating accused retailers of "seeking more profits from government price controls" by filing the suit, and maintained that retailers have not passed on the savings that resulted from the cap to their customers.

The merchant groups said that in raising the cap, the Fed considered expenses that the law did not allow. Their lawsuit maintains that the board dropped its earlier view that the only costs that should be considered in the fee were those involving the authorization, clearing and settlement of a transaction.

Instead, the retailers claim, the Fed added costs, such as fraud losses, associated with a bank's debit card operations that were not included in the law.

The result is that merchants sometimes now pay more in debit transaction fees. One of the plaintiffs in the case, Miller Oil Co. of Norfolk, Va., which operates convenience stores and gas stations, used to pay about 16 cents per transaction in bank fees.

The suit maintains that the cap is an "unreasonable interpretation" that exceeds the authority delegated to the Fed under the law. And it complains that the Fed wrongly interpreted another provision of the law that requires merchants have a choice of which network handles their transaction.

The law is part of the financial regulatory reform passed in July 2010.

Banks lobbied hard against the fee cap. They maintain that it will cost them about $7 billion in annual revenue. Attempts to compensate for the loss to this and other regulations by charging customers monthly fees for using debit cards sparked a nationwide furor in recent months, leading the banks to drop their plans.