A Catch-22 situation confronts the credit-card industry and its regulators: Issuing banks continue to charge interest rates averaging 18.6 percent on unpaid balances, despite a drop in the prime rate to 9.5 percent, insisting the high rates are necessary because of mounting losses resulting from fraud and deadbeats. Yet, the losses are caused by the increasing number of bad-credit risk customers to whom the banks offer cards in order to profit from the high finance charges.

Both houses of Congress are trying to use the threat of some sort of federal interest-rate ceiling to jawbone financial institutions into voluntarily lowering their rates. So far, however, only one major bank, Manufacturers Hanover, has responded.

Yesterday, it was the turn of Sens. Alfonse D'Amato (R-N.Y.) and Paula Hawkins (R-Fla.) to propose a limit pegged to national indices. D'Amato would set it at four points over the rate the Internal Revenue Service charges on late tax payments, or an effective 14 percent. Hawkins would choose the average investment yield of six-month Treasury bills and add five points, making it currently about 12.8 percent.

While Hawkins labeled rates running up to 21.6 percent as "unfair gouging on the unassuming consumer," D'Amato asked rhetorically why banks should charge everyone the same high rates "due to the fear that a small percentage will fail to pay off their balances."

Cardholders will charge about $331 billion in goods and services this year, up from $293 billion. Between one-third and one-half will pay off the balance before incurring finance charges. But the rest will pay more than $6 billion annually in interest. If the limit were dropped to 14 percent, consumers would save more than $1.16 billion a year, according to D'Amato.

He also would require banks to report their rates to the Federal Reserve Board, which would then make them available to the public for purposes of comparison. The Fed opposes any attempt to legislate interest-rate ceilings; it argues that such curbs would limit the availability of credit, particularly to low- and moderate-income people, who would be denied credit because they are regarded as poorer risks.

Fed governor Emmett J. Rice testified, moreover, that disclosure would place a substantial burden on the industry, with questionable benefits for consumers. Bankers contend that cardholders are not concerned about interest rates, while a poll by the Bankcard Holders of America showed that two-thirds of its members would switch banks to get a lower interest rate on MasterCard and Visa.

Only three states -- Alaska, Arkansas and Washington -- limit interest to below 18 percent; 17 states have no ceiling at all.

Charles F. Anderson, senior vice president of Rainier National Bank in Seattle, complained that his state's limit of 4 percentage points above six-month Treasury bills (currently 11.48 percent) has forced the bank to decline about 60 percent of applications it receives because it cannot afford the normal credit risks of the industry while operating under that ceiling.

Richard E. Huddleston, representing the American Bankers Association, suggested that current interest rates are warranted because they are really service fees for convenience and security. Robert Ranck, who spoke for the National Retail Merchants Association, said the average outstanding balance at current rates resulted in just $20 a year to a store.