Feb. 12 (Bloomberg) -- U.S. Senate Banking Committee Chairman Christopher Dodd proposed new limits on fees and charges for consumer credit cards, saying an era of lax regulation had lead to “gouging” of U.S. consumers.

Under legislation introduced yesterday, companies such as Bank of America Corp., Citigroup Inc. and American Express Co. would be limited in the kinds of fees they can charge. The bill would ban unilateral changes to credit-card agreements and retroactive interest rate increases.

“At a time when our economy is in a crisis and consumers are struggling financially, credit-card companies in too many cases are gouging them, hiking interest rates on customers who pay on time and consistently meet the terms of their credit-card agreements,” Dodd said at a Washington hearing today.

Banks are making it harder to get loans as they try to stem mounting losses and writedowns. U.S. consumer credit fell by $6.6 billion to $2.56 trillion in December, according to a Feb. 6 Federal Reserve report. In November, the number dropped the most since reporting began in 1943.

The Fed and other U.S. banking regulators unveiled new rules in December that will force lenders beginning in July, 2010 to abandon some practices, such as increasing rates on existing balances. Dodd, a Connecticut Democrat, and House Financial Services Chairman Barney Frank have vowed to keep the pressure on lenders as consumers continue to struggle. New laws are needed to make permanent changes in the industry, Dodd said.

‘Dangerous’ Mentality

For too long, consumer protection laws have been considered “antithetical to economic growth,” Dodd said. “We have learned painfully over the last several years how dangerous that mentality is.”

Dodd said his Connecticut constituents are angry about what he described as deceptive, abusive and predatory financial arrangements.

“People are infuriated about this,” Dodd said in an interview with reporters after the hearing. “There is truly an appetite for change in this area, one that maybe Washington doesn’t appreciate. But believe me, people outside of this town really do.”

‘Any Time, Any Reason’

The credit-card industry believes the Federal Reserve rules will have a broad and “not universally positive” impact, said Kenneth Clayton, senior vice president and general counsel of the American Bankers Association. Restrictions on how cards are priced will lead to less available credit and higher prices, he said.

The declining economy is showing up in card companies’ charge-off rates, loans that banks don’t expect to be repaid. Citigroup’s charge-off rates of total loans increased by 88 percent, climbing to 7.81 percent in December, up from 4.16 percent a year earlier, according to data compiled by Bloomberg. Bank of America’s rates increased from 5.24 percent to 8.45 percent, a 61 percent jump.

Dodd’s legislation, introduced with Senator Carl Levin, a Michigan Democrat, would prevent “any-time, any reason” rate increases, according to a bill summary. It would require that interest rate changes only apply to future debt. And it would allow customers who close their accounts to pay under their existing terms. A similar bill has been introduced in the House of Representatives.

Lawmakers considering further credit-card restrictions should first study how the Fed’s regulations are working, said Senator Richard Shelby, the panel’s senior Republican. The banking industry is already “drastically altering” credit-card agreements, he said.

Congress and banking regulators “need to be especially careful in this time of financial stress not to take actions that unduly restrict the availability of credit,” Shelby said.