New SDLR Reporting Tools

The regulatory landscape for consumer lending continues to evolve. The Small Dollar Lending Rule (SDLR) is currently set to go into effect on March 30, 2025. However, multiple challenges to the rule continue to unfold, creating significant uncertainty for lenders preparing for compliance.

Industry groups continue their multi-pronged effort to challenge the SDLR before its effective date. Most recently, the Community Financial Services Association of America (CFSA) has petitioned the U.S. Supreme Court to review the rule, arguing it remains “tainted” because it was promulgated. At the same time, the CFPB Director was unconstitutionally protected from presidential removal. This creates another potential avenue for the rule to be invalidated or delayed.

Meanwhile, leadership changes at the CFPB continue to add uncertainty. Russell Vought is currently serving as Acting Director, and Jonathan McKernan’s nomination for permanent Director has not yet been confirmed by the full Senate. Congressional representatives have also sent letters requesting Bureau action regarding the rule.

Despite this uncertainty, prudent lenders recognize that developing compliance capabilities remains essential, regardless of which regulatory bodies ultimately oversee these requirements or when they take effect.

Understanding the Core Requirements and Operational Challenges

At the heart of the SDLR is the “two-payment rule” – after two consecutive failed payment attempts due to Non-Sufficient Funds (NSF), lenders must stop collection efforts and take specific steps before processing further payments.

This creates a fundamental challenge: How do you efficiently track these consecutive failed attempts across thousands of accounts without making a compliance nightmare for your team?

• Operational inefficiency: Staff hours spent manually reviewing payment histories
• Human error risk: Even the most diligent teams can miss a consecutive failure pattern
• Compliance exposure: Each oversight creates potential regulatory violations
• Delayed response: By the time an issue is identified, you may have already attempted a prohibited third collection

These challenges multiply as transaction volumes grow, especially for lenders operating across multiple payment channels.

Introducing Automated SDLR Compliance Reporting

This month, Payliance is launching new SDLR compliance reporting tools designed to address these challenges. Our solution automatically identifies and reports two consecutive failed payment attempts due to Non-Sufficient Funds (NSF) for the same bank account and routing number or card account, giving you immediate visibility into accounts that require attention.

The reporting system is thoughtfully designed to align with how the SDLR regulations work:

• Separate reports for ACH and Card platforms show the two most recent consecutive NSF returns
• Reports update continuously, maintaining a rolling 3-month history
• The system only flags truly consecutive failures – if a successful payment occurs between failures, they won’t register as consecutive
• When a third consecutive failure occurs, it replaces the first failure in the report, maintaining the focus on the most recent failures.

These reports are easily accessible through the Payliance Merchant Portal, putting critical compliance information at your fingertips.

Anticipated Benefits for Lending Operations

The business benefits of automated SDLR transaction monitoring extend far beyond basic regulatory considerations:

• Reduced compliance risk through systematic, consistent tracking
• Lower operational costs by eliminating manual monitoring processes
• Improved visibility into consecutive failed payments across your portfolio
• Better documentation for audit and examination purposes

It’s important to note that while these reports provide essential information, they are designed as tools to support your compliance program. We always recommend consulting with legal counsel to ensure SDLR regulations are followed appropriately within your specific business context.

Adapting to Regulatory Uncertainty While Maintaining Operational Excellence

With the transition to a new administration and ongoing legal challenges to the CFPB’s structure, the SDLR’s enforcement landscape may shift from federal to state-level authorities. State Attorneys General may play an increasingly important role in consumer financial protection enforcement.

This regulatory uncertainty, however, doesn’t diminish the need for sound operational practices. Whether enforcement comes from federal agencies, state AGs, or through private litigation, having systems in place to monitor consecutive failed payment attempts remains a prudent business practice.

Technology solutions like Payliance’s SDLR compliance reporting represent an important investment in operational excellence that delivers value regardless of the regulatory enforcement mechanism. By automating the identification of consecutive failed payment attempts, lenders can:

• Maintain consistent practices across multiple jurisdictions as state-specific enforcement evolves
• Demonstrate good-faith compliance efforts to any regulatory body
• Improve operational efficiency by eliminating manual tracking processes
• Gain insights that help reduce payment failures and improve collection performance

For lenders navigating this uncertain regulatory environment, having flexible, data-driven tools in place creates resilience against changing compliance expectations.

Contact us today to learn more about how our SDLR transaction monitoring tools can strengthen your operational resilience while reducing costs, regardless of which regulatory bodies ultimately oversee these requirements.