A Congressional panel huddled on Wednesday to consider legislation that would curb high credit card fees and penalties by many banks that have benefited from the federal government's bailout program.

The bill, which would mean sweeping changes for banks that issue cards, is an important test of the political will of Democrats pushing for financial regulation reform.

The bill-writing session by the House Financial Services Committee is taking place one day before top executives from big banks and credit card companies meet President Barack Obama, who campaigned for credit card reforms.

Executives from Bank of America Corp, American Express Co, Citigroup Inc, Wells Fargo & Co, JPMorgan Chase & Co, Capital One Financial Corp, Visa Inc and MasterCard Inc will be among 14 credit card company officials expected to meet Obama early on Thursday afternoon at the White House.

It's a new era in Washington, said Rep. Carolyn Maloney, a New York Democrat and chief sponsor of the House bill. It's taken three years of hard work, but I'm delighted that we're on the brink of real protections for consumers.

Maloney's legislation would halt credit cards from imposing arbitrary rate increases and penalties and certain billing practices on balances with different rates.

The bill, called the Credit Cardholders' Bill of Rights, would give companies at least one year to make changes.

Committee Chairman Barney Frank, a Massachusetts Democrat, said Obama wants to make changes to the bill, but provided no details.

He plans to introduce Obama's proposals possibly during a vote next week on the bill by the full House. The committee must first approve it before the House can debate it.

The president of the United States informed me through his chief of staff that they were going to propose some changes to this bill, Frank said.

While the reform legislation appears to face clear sailing in the House, it remains unclear whether Democrats in the Senate can muster the 60 votes needed in that chamber to advance controversial legislation amid stiff opposition from the banking industry. The Senate's version of a credit card reform bill includes tougher language.

We believe the odds are against significant new credit card legislation, financial analyst Jaret Seiberg with Concept Capital said.

Banks say the legislation would hurt fee income at a time when they are trying to climb out of a financial hole created by the collapse of the housing boom.

BAILED OUT BANKS

U.S. banks that issue credit cards have received more than $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.

But with U.S. credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers and consumers, and even triggered an inquiry by the New York state attorney general.

U.S. lawmakers also angry that the same banks, such as Bank of America, Citi and Chase, with big credit card operations, charge excessive interest rates and fees while getting bailouts from taxpayers who use the cards.

Bankers say the proposed restrictions would wreak havoc with their risk pricing of card holders and, ultimately, reduce the amount of available credit and make it more expensive.

Maloney initially wanted to force credit card companies to adopt the stricter terms within 90 days of the bill becoming law, but a House subcommittee rejected that. Instead, the bill would give companies one year, or until July 2010, whichever comes first.

The July 2010 date is the deadline established by the Federal Reserve last December to implement changes to curb what Chairman Ben Bernanke called unfair and deceptive practices.

Banks, citing the need for time to develop software, train staff and work with vendors on new printing procedures, say they cannot implement these changes overnight.

(Reporting by John Poirier; Editing by Bernard Orr and Andre Grenon)

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