Senate votes to curb some credit card abuses

— -- The Senate approved a bill Tuesday to reform much-criticized credit card practices, putting such changes one step closer to being signed into law by President Obama.

The bill passed in the Senate imposes restrictions on fees and interest rate hikes on existing debt. It also requires issuers to apply credit card payments in a way that doesn't keep consumers mired in debt for years.

The legislation will go back to the House before it reaches the president, and action is expected this week. The Obama administration has said restrictions are needed to protect consumers from "abusive and deceptive" credit card practices.

A Federal Reserve rule would impose similar restrictions, but doesn't take effect until mid-2010.

Rep. Carolyn Maloney, D-NY, who authored the credit-card bill, hailed its passage as a way to "finally level the playing field between credit card issuers and card holders."

Banks have warned that at a time when credit is already tight, new restrictions will cause them to clamp down even more.

"The bill designed to protect consumers will actually harm them — by limiting credit and increasing the cost to everyone else," says Scott Talbott, a senior vice president at the Financial Services Roundtable, which represents large banks.

The legislation addresses many — but not all — of the credit-card practices that regulators and advocates say have pushed consumers deeper into financial distress.

Over the past two years, banks have raised many consumers' credit card rates, even as the Federal Reserve has cut short-term interest rates. Banks say higher funding costs, along with surging loan delinquencies and defaults, have forced them to reassess credit card risk.

The rate and fee increases often strip consumers of what little disposable income they have left and threaten to become another drag on the economy, USA TODAY's research has found. Banks sharply raised card ceilings during the housing boom partly because of a surge in home equity — that has since vanished — then guided borrowers to use mortgages to pay off their card balances, according to USA TODAY research.