The Federal Reserve on Friday proposed sweeping regulations of the business of consumer credit, curbing some of the credit-card companies' most reliable moneymaking practices.

If enacted, the rules would prohibit card companies from boosting interest rates on outstanding balances except in limited circumstances and ensure that payments are allocated to the most expensive debts, at least in part.

"These rules are a big deal," said Elizabeth Warren, a law professor at Harvard University. "The credit-card companies have been using whatever tricks and traps they want in credit-card agreements. These rules signal that those days may soon be over."

But every regulation comes with a cost, and these are no exception. The Fed acknowledged that the card companies could be expected to mitigate their losses by raising rates overall, eliminating discounts and promotions, and restricting credit.

But the greater impact is likely to fall on credit-card issuers. Shares of Capital One Financial, one of the largest credit-card lenders, fell more than 1 percent on Friday, as Wall Street analysts calculated the effects on the industry's bottom line.

A pitched lobbying battle in Washington is almost inevitable as these proposed rules move toward adoption. But Warren said she thinks it will be hard for banks and other issuers to derail the reforms.

The card companies will fight them, and they have billions of dollars to spend to protect their profits," Warren said. "But consumers are getting fed up, and people in Washington are beginning to realize that. Whether these are the final changes or whether the changes come from Congress or elsewhere doesn't matter so much. What matters is that change is coming."

The Fed's policy proposals went beyond its previous efforts to increase disclosure to cardholders. Disclosure, the Fed found in its research, failed to clear up the public's confusion about cards' terms and conditions.

Among them: payment allocation. Banks generally allocate customer payments to the balance with the lowest interest rate. For a cardholder with a balance of $3,000, a payment of $1,500 would be applied entirely to pay down a low-rate balance transfer before it paid down more expensive loans, like cash advances or purchases. This negates the benefit of the promotions, the Fed found.

Its proposal would require that card companies allocate payments more favorably, such as spreading the money around or paying it down in proportion to the size of the debt. This will cost them revenue and "may in turn lead institutions to increase rates generally or offer less favorable promotional rates or fewer deferred-interest plans," the Federal Reserve said.

Policies like these have made credit-card lending one of the most profitable businesses in banking, producing far greater returns on assets than other kinds of loans, according to the Fed. The average return on assets of all commercial banking was 1.94 percent in 2005, compared with the 2.85 percent return reported by large credit-card issuers.

Between 1990 and 2004, industry profits on a $100 balance grew 57 percent, to $3.61 annually from $2.30, according to a congressional report. Revenue from penalty fees on a $100 balance doubled during the same period.

Card-industry critics cheered the new rules. "This is really comprehensive and what consumer groups have been hoping for," said Ellen Cannon, the managing editor of Bankrate.com.

The Fed would also end a practice called universal default, in which banks jack up interest rates—sometimes doubling them—on outstanding credit-card balances when borrowers have problems with unrelated debt like a utility bill.

Consumer advocacy groups have long lamented this policy and appear to have finally won over regulators.

Cardholders "want to be blamed for the mistakes they make with their credit card, not with everything else," Cannon said.

Under the proposal, increases on balances would be limited to times when a cardholder falls more than 30 days behind on a minimum payment.

The Fed acknowledged that the policy "could lead to higher up-front costs and less available credit to consumers."