Reducing Payment Return Rates and Ensuring SDLR Compliance

Payliance Solutions: ACH with Real-time Account Validation, RCC, and Card Verify

Optimizing loan disbursements, improving repayment rates, and reducing return rates are critical for operational efficiency and compliance in the lending industry. Payliance’s ACH (Automated Clearing House), Remotely Created Checks (RCC), and Card Verify solutions offer a powerful combination to streamline payment processes, reduce return rates, and help lenders navigate upcoming regulatory changes, such as the Small Dollar Lending Rule (SDLR) two-payment attempt restriction going into effect April 1, 2025.

ACH with Real-Time Account Validation: A Cost-Effective and Compliant Solution for Loan Repayments

ACH processing remains a highly efficient and reliable method for managing loan repayments. Payliance’s ACH services can typically provide 10-20% transaction cost savings compared to other providers.

However, with the CFPB’s Small Dollar Lending Rule (SDLR) set to take effect April 1, 2025, lenders will face new limitations on multiple ACH payment attempts. Specifically, the two-payment rule restricts lenders to two consecutive failed attempts to withdraw payments from a borrower’s account. After that, explicit authorization from the borrower will be required to make any further attempts.

To comply with Nacha standards and SDLR, lenders must stay within the ACH return rate thresholds:

• Overall Return Rate: < 15%
• Administrative Return Rate: < 3%
• Unauthorized Return Rate: < 0.5%

Exceeding these thresholds can result in penalties, and the SDLR’s two-payment rule further limits how often lenders can attempt payment collection. As a result, it becomes essential for lenders to minimize the chance of failed payments early in the repayment process by utilizing real-time account validation and fraud detection tools, both offered by Payliance. These features help ensure payments are processed successfully on the first attempt, reducing the need for multiple retries and maintaining compliance with Nacha’s return rate limitations.

How the SDLR Affects ACH Return Rate Management

• Limiting Multiple Payment Attempts
  Under the new two-payment rule, the current practice of making multiple ACH attempts to collect loan repayments will be restricted. This will directly impact lenders’ ability to rely on ACH to retry payments after a failed transaction. Lenders can no longer make three attempts without borrower consent, so collecting payments efficiently within the first two attempts is critical. Lenders will need to focus on minimizing failed payment attempts.
• Increased Need for Borrower Communication
  With the new rule, lenders must obtain explicit consent from borrowers to make additional payment attempts after two failures. This emphasizes proactive communication with borrowers, ensuring that they understand the repayment terms and are informed of any failed attempts quickly.  Payliance’s Loan Repayment Mobile Service can help engage with your customers and drive payment activity.
• Real-Time Validation to Reduce Failed Payments
  To comply with the SDLR and avoid the need for multiple attempts, lenders should leverage real-time account validation and fraud detection to minimize the likelihood of a failed payment. Payliance’s ACH solution helps lenders validate borrower account details before initiating a payment, reducing the risk of non-sufficient funds (NSF) and improving repayment success within the first two attempts.

RCC: A Flexible Solution for Managing Higher Return Rates and Improving Repayments

RCC (Remotely Created Checks) offers a flexible option for lenders seeking an alternative to ACH. Since RCCs operate outside the ACH framework, they can provide an additional tool for managing repayments without the return rate restrictions.

• RCC’s Higher Return Rate Tolerance: RCC allows for higher return rates than ACH, with a use-case-based return rate threshold of up to 75% and an unauthorized return rate threshold of <1.0%. This makes RCC a viable option for payments more likely to face issues with insufficient funds or other payment failures.
• Regulatory Compliance: RCC still adheres to critical regulations like Reg CC, Reg J, and the Check 21 Act, ensuring that lenders remain compliant while maintaining flexibility in managing repayments.

Card Verify: Verify a Borrower’s Debit Card Account, without Counting as Payment Attempt

Payliance also offers Card Verify as an additional solution to address the challenges posed by the SDLR. Card Verify allows lenders to verify a borrower’s debit card account status without counting as a payment attempt under the two-payment rule.

Key Benefits of Card Verify:

• No Impact on Payment Attempt Limits: Since Card Verify transactions are non-monetary ($0), they do not count as payment attempts under the SDLR, allowing lenders to verify account status without risking a failed attempt.
• Real-Time Account Validation: Card Verify checks if the debit card account is active and in good standing, ensuring that the subsequent payment attempt has a higher chance of success.
• Detection of Insufficient Funds: If the account has a negative balance, Card Verify can identify this issue beforehand, helping lenders decide whether to proceed with a payment attempt.
• Enhanced Fraud Prevention: By validating the account details upfront, lenders can reduce the risk of fraudulent transactions.

Adapting to the SDLR: What Lenders Should Do

• Refine Borrower Engagement Strategies
  To mitigate the impact of the two-payment rule, lenders should focus on improving borrower communication. This includes sending timely notifications about payment failures and obtaining advance consent for future attempts if necessary. Ensuring borrowers know repayment obligations can reduce the risk of multiple failed attempts.
• Leverage Payliance’s Card Verify for Pre-Transaction Validation
  • Proactively Identify Issues: Detect potential payment failures due to inactive accounts or insufficient funds before making a payment attempt.
  • Enhance Success Rates: Increase the likelihood that the first payment attempt will be successful, thus staying within the SDLR’s permitted attempts.
  • Optimize Collection Strategies: Make informed decisions about when to initiate payment attempts based on real-time account status.
• Increase Reliance on Real-Time Fraud Detection and Validation
  By using Payliance’s real-time validation and fraud detection features, lenders can reduce the number of failed payments from the outset, improve repayment rates within the first two attempts, and stay compliant with the SDLR.
• Adjust Risk Management and Loan Terms
  Lenders may need to re-evaluate risk assessment processes and adjust loan terms for higher-risk borrowers. By identifying potential repayment issues earlier, lenders can preemptively offer flexible repayment options or change the collection strategy.

Why Choose Payliance’s ACH, RCC, and Card Verify Solutions

• Improved Loan Repayment Rates: Faster processing times, real-time validation, and multiple payment tools help lenders improve repayment rates and borrower satisfaction.
• Efficient Return Rate Management: Payliance ensures compliance with Nacha’s ACH thresholds and offers RCC as a more flexible option for managing return rates under challenging scenarios.
• Adaptability to Regulatory Changes: Payliance’s ACH and RCC solutions help lenders adapt to regulatory changes like the SDLR, ensuring they remain compliant while optimizing payment collection processes.
• Enhanced Account Validation: Card Verify adds an extra layer of security and assurance by confirming account status without affecting the permitted number of payment attempts.

See How Much You Can Save and Improve Repayment Rates

With regulatory changes on the horizon, now is the time to optimize your loan disbursement and repayment processes. Try our cost savings calculator to see how much your business can save with Payliance’s ACH solution, and discover how these tools can help you reduce return rates, improve repayment rates, and stay compliant with the SDLR.

Schedule a consultation with our team today for more details on how Payliance can support your lending business.