New Defense Department rules on credit cards issued to service members and their dependents go into effect Tuesday, but they won’t help current cardholders.

Only new credit card accounts opened by service members and their dependents as of that date will be covered, so advocates expect the rules to have little immediate effect. And one of the main rules ― a requirement that credit cards limit their annual percentage rate to 36 percent for military members ― rarely applies, advocates noted, as most cards don’t reach that figure, even with extra fees and charges included.

That interest rate cap is the main benefit under the Military Lending Act. The new DoD rule is part of an expansion of DoD’s implementation of that law, to provide more protections to service members and their dependents.

While most other types of credit extended to military members has been covered under DoD rules, credit cards weren’t covered until now.

“Service members and their families will receive the same consumer financial protections that they are currently afforded under the Military Lending Act for most forms of closed-end consumer credit,” DoD spokesman Army Lt. Col. Paul Haverstick said. “Those protections include the cost of credit not to exceed 36 percent [annual percentage rate], mandatory disclosures, and the prohibition of certain practices as a condition of credit, such as waiving one‘s right to legal recourse in a loan dispute.”

The rules likely will affect a narrow slice of the credit card market, said Rohit Chopra, senior fellow at the Consumer Federation of America. “Currently the vast majority of credit cards issued offer interest rates well below the 36 percent rate cap.”

For example, credit unions can’t charge more than 18 percent interest on their credit cards.

Including credit cards in the DoD rules was important, said Christopher Peterson, a professor of law at the University of Utah, who has conducted research on payday lending and effects on the military community. There was the potential that some predatory credit cards could evolve in the future, he said.

“As it will become more difficult for payday lenders to continue to make loans to service members, there was the chance payday lenders could try to evolve their products to become credit card products,” Peterson said. “That would be unfortunate if they manage to circumvent regulations by modifying products to simply be issued with a piece of plastic.

“The Defense Department is trying to close loopholes to make sure that service members get the benefit of protections the Congress provided to them.”

Another key protection for service members, Peterson said, is the prohibition of clauses in creditors’ contracts with service members and dependents that would prevent service members from going to court to settle disputes. That now applies to future credit cards issued.

“It’s a meaningful right, but not one you’d notice until there was a dispute that arose,” Peterson said.

The Military Lending Act of 2006 gave DoD broad authority to define the types of loans covered by the 36 percent interest rate cap, with the exception of mortgages or purchase-money loans. In its initial implementation of the law in 2007, DoD put narrow limits on the types of credit covered: payday loans, vehicle title loans and refund anticipation loans.

Consumer advocates complained that unscrupulous lenders were skirting these narrow rules and morphing their products to be able to charge service members and their families high interest rates; they would tweak payday loan terms, for example, so they would fall within the rules.

This enabled lenders to find ways to continue to charge interest rates north of 300 percent to service members and their families. So for the last several years, DoD has been working to change its rules.

In October, 2016, DoD implemented expanded rules to include all types of consumer credit, such as overdraft lines of credit, deposit advance loans and installment loans, to name a few examples. Lenders have to follow stricter rules for active-duty members and their dependents than they do for civilian borrowers.

But DoD gave credit card issuers an extra year to implement credit card rules.

Under the law, the rules apply to cards issued to active-duty military and dependents, but not to retirees and other veterans.

The most extensive new regulations deal with how the fees are figured out. Certain fees and charges generally must be included in the interest rate calculation. For example, the basic interest rate might be 27 percent, but extra fees could bring it above the 36 percent cap under the law.

But credit card issuers don’t have to include “bona fide” fees if they are reasonable, such as late fees, and annual (participation) fees. There are procedures for determining what is “reasonable.”

Certain fees, such as charges for voluntary credit insurance and debt cancellation contracts, must be included in the interest rate calculation. Credit card issuers don’t have to include the disclosure about your effective interest rate on your statement; under Federal Reserve rules, that’s optional.

Other new rules include:

  • Creditors can’t require borrowers to waive their rights to legal recourse or submit to arbitration rather than taking the company to court if there’s a dispute.
  • No fees can be charged in a billing cycle when there’s a zero balance, except an annual (participation) fee, which in most cases, can’t exceed $100 a year.
  • Rewards programs (cash back, account credits, etc.) could be allowed to offset the calculations on the interest rate, on a case by case basis.