WASHINGTON (AP) - The Federal Reserve and other regulators initiated steps Friday to end "unfair and deceptive" credit card industry practices assailing consumers who are already struggling to cope in a bad economy.

The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.

The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations.

Federal Reserve Chairman Ben Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate." Consumers using credit cards "should be better able to predict how their decisions and actions will affect their costs," he said.

Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt.

The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis.

"These steps are a significant improvement," said Sen. Charles Schumer, D-N.Y., a member of the Banking Committee and a leader in legislative efforts to make credit card companies more forthcoming about the interest rates they charge. "While they can still go further, the Fed deserves credit for acting, particularly for banning some awful practices rather than relying solely on disclosure."

Last year the Fed proposed rules that would make credit card bills and solicitations easier to understand, but Friday's proposals go well beyond those in tightening interactions between the industry and consumers.

"At first blush, this does seem to be good news for credit card holders," said Sen. Robert Menendez, D-N.J., author of pending legislation addressing some of the same credit card abuse issues. "However, it remains to be seen if these proposals will go far enough."

"The problems are mounting and the last thing consumers need is to have credit card companies ripping them off with late fees and charges through no fault of the consumer at all," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who is also pushing reform legislation.

The banking industry opposes the changes, and says they could lead to higher interest rates. The rules could be finalized by the end of the year.

The proposed new rules would prohibit:

-Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay;

-Unfairly allocating payments among balances with different interest rates, with lenders crediting payments to balances with lower rates so they can continue to charge interest for balances at higher rates;

-Retroactively raising interest rates on pre-existing balances;

-Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;

-Unfairly computing balances in a computing tactic known as double-cycle billing;

-Unfairly adding security deposits and fees for issuing credit or making credit available;

-Making deceptive offers of credit.

The agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumer's funds when a person uses a debit card.

Ken Clayton, senior vice president of card policy for the American Bankers Association, described the proposed changes as "aggressive regulatory intervention in the marketplace that will result in higher prices and less consumer credit."

"If card companies cannot fully reflect risk, then millions of consumers with good credit histories will end up with higher rates," the ABA's president and CEO, Edward L. Yingling, said in a statement.

"It's unfortunate that the industry continues to buck the immense groundswell of support that is building for credit card reform," said Rep. Carolyn Maloney, D-N.Y., who has introduced consumer protection legislation in the House. She said the Fed endorsement of provisions in her bill "puts to rest the credit card companies' assertion that reform will somehow harm consumers or the economy."

The Consumer Federation of America estimates that credit card debt held by consumers is about $850 billion, some four times what it was in 1990. The group says the average debt for those 58 percent of card-holding households that do not pay their balance in full every month is about $17,000.

Travis Plunkett, legislative director for the federation, said the rules were a "good-faith effort by the Federal Reserve to curb some of the most significant abuses that have been hurting credit care users for over a decade." He singled out the practice of lenders increasing interest rates on a borrower because of a supposed problem with another creditor or a drop in the borrower's credit score.

But the CFA and other consumer groups also complained that the "opt-out" proposals for overdraft plans were insufficient and there should be an affirmative "opt-in" right for such plans. Banks routinely allow consumers to overdraw their accounts and then charge overdraft fees, the groups said.

The Fed is acting in conjunction with the National Credit Union Administration and the Office of Thrift Supervision.

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Associated Press writer Laurie Kellman contributed to this report.

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On the Net:

Federal Reserve: http://www.federalreserve.gov/

National Credit Union Administration: http://www.ncua.gov/RegulationsOpinionsLaws/proposed-regs.html

AP-ES-05-02-08 1641EDT