The Small Dollar Lending Rule: Make the Most of Your Two Attempts

The Consumer Financial Protection Bureau (CFPB) originally passed the Final Rule on the Payday, Vehicle Title, and Certain High-Cost Installment Loans in 2017. The rule is also referred to as the Payday lending Rule or  Small Dollar Lending Rule. In 2020 the final rule was issued, removing the underwriting requirements but still mandating the payment provisions. The payment provisions prohibit lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. The payment provisions also require such lenders to provide consumers with written notice before making their first attempt to withdraw payment from their accounts and before subsequent attempts that involve different dates, amounts, or payment channels. The provision was confirmed to include card payments as well as ACH payments.

The Small Dollar Lending Rule was originally set for a compliance date of 286 days from entry of the court’s order from August 31, 2021. At this point, it is uncertain what the enforcement date for the payment provisions of the Small Dollar Lending Rule will be but it is certain that these provisions protect both consumers and lenders. In the meantime, lenders must begin examining processes and engaging with vendors to determine what solutions will help them obtain the most advantages.

How to Make the Most of Payment Attempts

With the date of compliance imminent, the reasons to enact solutions today are many. On the other hand, it may seem that the initial cost of compliance solutions is high, however, lenders cannot afford to disregard the benefits of bank and payment data solutions. First and foremost, validating a consumers’ bank and payment data and determining their ability to repay loans protects both consumers and lenders from unnecessary risks. Besides preventing a failed first payment attempt, ACH returns and defaults can be avoided with simple verification of the consumer’s account information. Furthermore, data solutions provide additional benefits with consumer identity verification and assessing creditworthiness, strengthening fraud protection and significantly improving the likelihood of repayment.

Frictionless Solutions

ValidiFI has the trusted data solutions, with the coverage you can count on and easy implementation, to improve both ACH and debit card payments. We offer a variety of low-cost, effective solutions that help you maximize your first payment attempt by increasing confidence for successful payments. Leverage our solutions to create an effective strategy that will validate bank account status and funds availability and makes sure you only present for payment when funds are available.

We recommend utilizing frictionless solutions at the time of application to best determine whether a consumer is acceptable and has the ability to repay. Our non-credentialed process includes:

1. PI Risk Score (Payment Instrument Risk Score) – At the time of underwriting, determine a consumer’s creditworthiness, and likelihood to default. This solution makes certain you only give money to the consumers you can substantiate are lower risk and proactively avoid repayment issues.
2. CAV (Card Account Verification) – Verify that the card provided is in fact active and not closed, stolen, or expired, before processing.
3. BAV (Bank Account Validation) – Funds & Balance – Validate that the consumer has enough funds in their bank account before debiting via ACH or debit card.

When to Use Credentialed Options

Though frictionless is preferred, there are circumstances where a greater amount of data is needed, for example, if funds are identified as not available, Bank Aggregation can provide a more suitable time with a greater likelihood for successful payment. This data is easily accessed through ValidiFI’s Bank Aggregation solution.

Bank Aggregation – A credential-based service providing real-time insight into the consumer’s balance, spending patterns, and employment and income. This information allows you to proactively assess the consumer’s risk of missed payments and obtain insight into the optimal date and time for presentment.

The time is ticking on compliance, you don’t want to wait until it’s too late. Many lenders have already implemented powerful banking and payment data not just to achieve compliance but for the many additional benefits. Compliance rules are only becoming tougher, get ahead of the curve, and choose the solutions that will grow your business today.

If you need assistance with compliance and the Small Dollar Lending Rule when it comes to finding the right strategy for your company, ValidiFI can help. We help lenders identify the right solutions for their business growth. We can assess your processes and help you develop the best strategy for protecting your customers while protecting your ability to collect payments.

Contact us for more information.