May 13 (Bloomberg) -- The U.S. Senate blocked consideration of a 15 percent cap on credit-card interest rates, as lawmakers continued debating ways to limit lenders’ fees and changes to contracts with consumers.

Senators voted 60-33 to invoke budget rules that killed the proposal, by Senator Bernie Sanders, a Vermont independent. Sanders said the action was needed to stop banks from routinely charging 25 percent to 30 percent on credit cards.

“When banks are charging 30 percent interest rates, they’re not making credit available, they’re engaged in loan- sharking,” Sanders said.

The Senate credit-card legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as “universal default.”

Senate Banking Committee Chairman Christopher Dodd, the bill’s main sponsor, told reporters he expects the Senate to pass it tomorrow.

“We’ve spent a lot of time over the last number of months trying to help stabilize the financial system,” Dodd said. “A lot of attention has been paid to banks. We haven’t spent enough time trying to help consumers.”

Rate Notices

The bill would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. Companies would have to restore the original, lower rate if a cardholder stayed current six months after a late payment.

Earlier, senators rejected, 65-28, an amendment by Senator David Vitter, a Louisiana Republican, that would have required lenders to verify credit-card applicants’ identities through Social Security cards and other documents. Vitter said easy access to credit cards fuels illegal immigration and is a threat to national security.

“Their going after illegal aliens as a niche market or profit center is a problem we need to address,” Vitter said.

Dodd countered that a Treasury Department analysis indicated the amendment would have required future card applications to be processed in person at banks.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net.

Last Updated: May 13, 2009 18:20 EDT