American Express Co. shares dropped 3.5 percent after Stifel NIcolaus & Co. suggested that federal regulations on debit card fees might extend for credit cards as well.  This was the largest drop in more than two months. 

The Federal Reserve proposed legislations that would limit the interchange fees that merchants must pay to accept debit cards.  Such actions will give retailers more reason stay away from American Express credit and charge cards due to their higher cost. 

Stifel analyst, Chris Brendler said, "We are increasingly convinced that credit interchange will inevitably be the next target,” he wrote. “The now- significant disparities in payments’ costs greatly increase the risk," he wrote.

President Barack Obama signed the Dodd-Frank regulatory-overhaul legislation in July, which prompted the Federal Reserve proposals.  The Federal Reserve was asked to regulate interchange fees so that the cost of processing debit transactions is reasonable and proportional.  Average interchange fees in the United States is currently about two percent per transaction.

The credit card payment processing industry has been able to side step U.S. legislations to regulate credit card fees.  They claim that these fees are necessary to compensate banks for the risk of lending money.  This is an argument that holds very little water when dealing with debit cards, which immediately deduct finances held in consumer checking accounts.

Shares of the world's largest payments network, Visa Inc., fell 17 percent last week.  MasterCard Inc., which holds the number two title, fell 13 percent when the Federal reserve proposed rules to limit interchange fees to 12 cents per transaction. 

American Express charges merchants an average 2.56 percent per purchase.  They do not offer debit cards.  American Express is also combating a federal antitrust lawsuit that suggests the company's contracts unfairly disallow retailers from persuading customers to cheaper card brands.