Understanding the Small Dollar Lending Rule

Lenders offering short-term, high-cost loans have seen the Small Dollar Lending Rule (SDLR) looming on the horizon for years. Now, with the March 31, 2025 deadline set, the time to act is here. Whether you’re a seasoned lender or relatively new to the space, the SDLR is set to disrupt traditional practices, creating challenges—but also opportunities.

What’s Driving the SDLR?

The Consumer Financial Protection Bureau (CFPB) introduced the SDLR to protect borrowers by limiting harmful lending practices. But for lenders, it means rethinking operational processes, especially around payment attempts and borrower communications.

Here’s the core of the SDLR:

• Lenders can no longer make more than two consecutive failed payment attempts—across any payment channel.
• Following any such two consecutive failed payment attempts, a Lender must first secure a new authorization from their Borrower before any new or subsequent payment attempts are made.
• Borrowers must receive written notifications ahead of new attempts that deviate from the agreed terms or schedule.
• Lenders must keep detailed records of payment attempts and borrower communications for 36 months.

Why Does This Matter to Lenders?

Compliance isn’t just about avoiding penalties; it’s about maintaining borrower trust and operational stability:

• Financial Penalties: Non-compliance could result in CFPB enforcement actions, fines, and reputational damage.
• Operational Complexity: Tracking failed attempts across channels, sending notifications, and maintaining records can strain existing processes.

Think of compliance as more than a regulatory hurdle—it’s an opportunity to streamline operations and build credibility with your borrowers.

Who Is Impacted?

If your portfolio includes:

• Payday loans
• Vehicle title loans
• High-cost installment loans
  …you’re likely affected. Loans secured by real estate or vehicles, wage advances, and no-cost advances may be excluded, but every lender should conduct a thorough audit to ensure compliance.

How Payliance Helps Lenders Prepare

Payliance is here to ease your compliance burden with tools designed to keep you ahead of regulatory challenges:

• Automated Notifications: Eliminate the guesswork in borrower communications by automating notices.
• Failed Payment Monitoring: Track attempts across payment channels to avoid prohibited actions.
• Data Retention Solutions: Easily maintain the required 36-month record of communications and attempts.

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