With the economy faltering, Democrats are eyeing unpopular credit card practices as a way to win votes in the 2008 election.

Sens. Barack Obama (D-Ill.) and Hillary Rodham Clinton (D-N.Y.) are seizing on the issue as they duel for their party’s presidential nomination, and Democrats in Congress are pushing a crackdown on the industry.

 “During a difficult economic moment like we have now, the credit card issue percolates,” Rep. Chris Murphy (D-Conn.), a freshman on the Financial Services Committee, said. “I do think this is an issue with some populist appeal behind it.”

Roughly 80 percent of American households have at least one credit card, making the industry’s practices relevant to far more people than are touched by the current mortgage crisis.    

In a sign of credit cards’ potency as a consumer issue, television news crews packed into the hearing room of a Senate Homeland Security and Government Affairs subcommittee last fall where Sen. Carl Levin (D-Mich.) was grilling industry executives.

Rep. Carolyn Maloney (D-N.Y.) introduced legislation last week that, among other things, would require issuers to give 45 days’ notice before any rate increase. Backed by Financial Services Committee Chairman Barney Frank (D-Mass.), the bill is quickly gathering Democratic co-sponsors.

“Because so many people have credit cards, it’s getting a lot of traction,” lamented one banking lobbyist who is fighting the bill.

In the Senate, Levin has a bill that would cap any rate increase imposed on existing balances at 7 percent.

On the presidential campaign trail, Clinton has proposed a 30 percent annual rate cap on issuers, part of a broader platform related to the industry that she unveiled last month.

Obama has promised to unveil a “credit cardholders’ bill of rights.” He has paired with Sen. Ron Wyden (D-Ore.) on legislation to institute a system that would rate issuers on how they treat customers.

Reining in unpopular practices by credit card companies is a way for Democrats to tap into angst about the economy without confusing voters, one Democratic House aide argued. “You can’t talk about GDP rates or the Fed funds rate with voters. So what do you talk about? You talk about credit cards,” the aide said.

The national press secretary for the Democratic Congressional Campaign Committee, Doug Thornell, expects the issue to come up on the campaign trail in many districts across the country. “Given the economic downturn, I think Democrats are going to be talking a lot about the economy and offering solutions,” he said.

Industry lobbyists are trying to beat back the assault. They  argue that Maloney’s legislation would dry up credit for poorer borrowers and reduce perks such as low initial rates for balance transfers and frequent flier miles.

The industry is particularly concerned about a provision in the bill curbing “universal default” — a practice in which issuers increase rates on borrowers on existing balances due to a late payment or default to another lender.

Critics of the practice condemn it as unfair and arbitrary, pointing to instances when a rise in a borrower’s overall debt due to a new mortgage has been enough to trigger the rate increase.

Maloney’s bill would prohibit issuers from changing rates on current balances, but does not ban them from raising rates prospectively, as long as they give consumers 45 days’ warning.

Lobbyists for the industry say the change would hamper its ability to price for risk, forcing it to tighten credit at a time when financial markets are roiling from the sub-prime mortgage mess.

But the issue may have political legs. After he arrived in Washington last year, Rep. Keith Ellison (D-Minn.) promptly introduced a bill banning the practice. The freshman said he met many people “smacked in the head” by universal default while knocking on doors for votes in 2006.

It could be tough to convince Republicans and many centrist Democrats to get on board. So far, only one Republican, Rep. Christopher Shays (Conn.), has signed on to the legislation. And the ranking member on the Financial Services Committee, Rep. Spencer Bachus (R-Ala.), and Rep. Judy Biggert (R-Ill.) last week sent a letter to fellow Republicans urging them to “reserve judgment” and wait for a hearing before supporting the legislation.

Rep. Ed Perlmutter (D-Colo.) said he had not seen Maloney’s final bill, but cautioned against an excessively onerous overhaul of issuer practices. “We need to tighten up the regulation because there are too many surprises. Now, you can go overboard and completely dry up credit.”

“You could end up going too far and hurting the amount of credit going to the consumer,” Murphy said.

Travis Plunkett, the top lobbyist for the Consumer Federation of America, which is pushing for the legislation, argued that it would behoove any lawmaker to sign on to the bill. “It’s a good political issue — for Republicans, Democrats and for Independents. This isn’t just a problem that’s limited to a handful of cardholders.”