Sector snap: Credit cards mostly fall ahead of Fed vote

The proposed new rules, which could be finalized by the end of the year, would prohibit such actions as placing unfair time constraints on payments; unfairly allocating payments among balances with different interest rates; unfairly raising annual percentage rates on outstanding balances; and unfairly computing balances.

The Fed, which is expected to vote Friday afternoon, is acting in conjunction with the National Credit Union Administration and the Office of Thrift Supervision.

Analysts generally feel the proposed rules, if approved, will have little long-term effect on the credit industry overall.

Chris Brendler, an analyst at Stifel, Nicolaus & Co., said most credit card companies have been moving away from the practices being addressed ahead of legislation. Plus, the rules are not likely to be approved in their current form, he said.

"Capital One has been the most aggressive in eliminating controversial practices ahead of something like this," said Craig Maurer, an analyst at Calyon Securities Inc., a member of the Credit Agricole Group. Shares of Capital One Financial Corp. fell 27 cents to $55.55 in afternoon trading.

One possible impact could be the elimination of balance transfers, Brendler said. "That one really does change the game for a lot of the issuers," he said, referring to the rule that would prohibit the unfair allocation of payments among balances with different interest rates.

Maurer, on the other hand, said the biggest potential impact could be the limiting of banks' ability to price for risk on a real-time basis. But banks and other card issuers will find a way to compensate, he said. "There are ways to recuperate profitability that don't have to do with interest rates," Maurer said, adding that issuers could charge exorbitant annual fees to cardholders instead.

Morgan, Keegan & Co. analyst Robert Dodd doubts there will be any material impact on MasterCard Inc. or other processors, as the rules apply to credit card issuers.

MaterCard shares dropped $10.44, or 3.6 percent, to $283.50. Shares hit a new all-time high of $298.40 earlier in the session.

Rival credit card processor Visa Inc. lost $3.20, or 3.8 percent, to $82.20. Shares have traded between $55 and $87.64 since the company went public in March.

American Express Co. shares fell 46 cents to $50.87.

Bucking the trend, Discover Financial Services gained 10 cents to $19.35.