SDLR Payment Authorization: What You Need to Know

As the consumer lending landscape continues to evolve, the implementation of the Small Dollar Lending Rule (SDLR) marks a significant shift in payment processing requirements. With the March 30, 2025, compliance deadline approaching, understanding the nuances of payment authorization under the SDLR is crucial for maintaining operational efficiency and regulatory compliance.

Understanding the Scope: What Really Matters

The SDLR’s payment provisions focus solely on payment attempt dates, not loan origination dates. This means that starting at 12:01 AM on March 30, 2025, the rule applies to payment attempts made on that date and after. When two consecutive payment attempts fail, lenders must obtain new authorization from the borrower before initiating additional payment attempts.

This distinction is critical for both operational planning and risk management. The focus is on the timing and outcome of payment attempts made on or after the effective date, making it essential to have proper systems in place to track and respond to failed payment attempts.

The Two-Strike Rule: A New Operating Reality

Under the SDLR, lenders must obtain new authorization from borrowers after two consecutive failed NSF payment attempts before initiating any additional payment attempts.

Importantly, a failed debit card authorization counts as an attempt under the rule. This requirement:

• Focuses on consecutive failed attempts, not cumulative failures
• Includes failed debit card authorizations as attempts
• Necessitates new processes for obtaining borrower authorization

Strategic Implications for Your Business

The SDLR’s payment provisions will have far-reaching effects on operational processes and risk management strategies:

Revenue Protection Implementing robust payment retry strategies before reaching the two-attempt limit becomes crucial. This means developing sophisticated waterfall approaches and leveraging payment intelligence to optimize success rates on initial attempts.

Operational Efficiency The requirement for new authorization after two failed attempts necessitates streamlined processes for borrower communication and consent capture. Organizations need to evaluate their current payment processing workflows and develop efficient mechanisms for obtaining and documenting new authorizations.

Risk Management With the focus on payment attempts, organizations must enhance their monitoring capabilities to track consecutive failures across all payment channels. This requires integrated systems that can provide real-time visibility into payment outcomes and automatically flag accounts requiring new authorization.

Action Steps for Compliance

1. Review your payment processing systems to ensure they can track consecutive failed attempts across all channels
2. Develop clear processes for obtaining and documenting new borrower authorizations
3. Implement monitoring systems to track compliance with the new rules

Looking Ahead

The SDLR’s payment provisions represent more than just another compliance requirement—they present an opportunity to optimize payment operations and enhance borrower communication strategies. Organizations that approach these changes strategically will be better positioned to maintain efficient operations while ensuring compliance.

Expert Support Available

As the deadline approaches, working with experienced payment processing partners becomes increasingly valuable. These partnerships can provide the technical infrastructure and compliance expertise needed to navigate the new requirements effectively while maintaining operational efficiency.

Take Action Today: Schedule a compliance consultation with Payliance to ensure your operations are ready before the SDLR goes into effect.