U.S. senator predicts swift action on credit cards

WASHINGTON Feb 12 (Reuters) - Credit card practices considered unfair to consumers, such as sudden rate increases, will disappear sooner than a 18-month implementation period set by regulators, Sen. Christopher Dodd predicted on Thursday.

"These practices are wrong, and they're unfair," the Connecticut Democrat who chairs the Senate Banking Committee told a congressional hearing on the issue. "Mark my words: in the coming months, they will end."

Card issuers currently have until July 2010 to implement limits to sudden interest rate increases and curbs on confusing payment structures. The rules were adopted in December by the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration.

The new rules prohibit raising the annual percentage rate on existing balances except under certain circumstances and give consumers 45 days notice before a rate increase and 21 days to pay.

Dodd is among several lawmakers who have reintroduced legislation to curb abuses by card issuers amid criticism that regulators were too generous in setting their deadline.

Democrats Sen. Charles Schumer and Rep. Carolyn Maloney, both from New York, are among lawmakers who want to reduce the implementation period to as little as three months.

"Consumers are trapped in a business model that is designed to induce mistakes and jack up fees," Schumer said.

Dodd did not express a preference for a new implementation date and it was unclear if he was inclined to impose a date by legislation or hoped for voluntary action.

Banks such as Citigroup Inc (C.N), Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N) have long opposed changes to their profitable credit card business.

They are quick to remind the public of the conveniences of credit cards which are open-ended loans that carry the risk of not being paid back.

"Lenders who make these loans face significant operational, risk management and funding challenges in making this product available to millions of Americans every day," Ken Clayton, senior vice president at the American Bankers Association trade group, told the committee hearing.

The banking committee's senior Republican, Sen. Richard Shelby of Alabama, cautioned against acting too fast and stifling innovation and giving consumers fewer choices.

"I would prefer to give regulators time to implement changes," Shelby said.

The new regulatory rules will also ban a practice known as universal default, in which card terms are changed based on how the holder performs on other bills, such as utility charges or gym memberships.

Citi, Bank of America and JPMorgan are among the biggest issuers of cards carrying the Visa Inc (V.N), MasterCard Inc (MA.N) logos.

American Express Co (AXP.N) and Discover Financial Services (DFS.N) offer their own products. (Editing by Tim Dobbyn)