How SparkLMS Empowers Lenders To Comply with the Small Dollar Lending Rule [SDLR]
As part of its continued commitment to regulatory compliance and lender enablement, SparkLMS has rolled out a comprehensive suite of features designed to help lenders effortlessly comply with the Consumer Financial Protection Bureau's (CFPB) upcoming rule on two consecutive payment returns(Small Dollar Lending Rule). Scheduled to take effect on March 30, 2025, this rule is a crucial step toward protecting consumers from repeated unsuccessful withdrawal attempts that can lead to spiraling bank fees and overdrafts.
With these updates, SparkLMS loan servicing software ensures that lenders are well-equipped to adapt to this regulatory change without disrupting operations, with minimal effort and cost. Here’s a detailed look at the measures SparkLMS has implemented:
Understanding that timely communication can prevent many payment issues, SparkLMS loan management software automatically sends email and text reminders to borrowers three days before their first scheduled loan payment. These reminders contain vital information such as the payment date, amount, and method, helping borrowers prepare in advance. More importantly, the messages include a secure link to the borrower’s authenticated Payment Authorization page and an option to make a payment immediately.
This feature serves two purposes: it helps borrowers stay informed and prepared and reduces the likelihood of missed or returned payments, thereby assisting lenders to maintain compliance without added complexity.
To comply with the CFPB rule, lenders must not attempt further withdrawals after two consecutive payment returns without obtaining renewed authorization from the borrower. SparkLMS now includes a built-in mechanism that triggers an email to the borrower immediately upon the second return.
This email not only explains the need for reauthorization but also encourages the borrower to use a digital signature link to authorize future payments. Additionally, it provides a secure payment link so the customer can initiate a one-time payment without waiting. These capabilities ensure lenders can halt unauthorized attempts while still offering customers a path to resolve their account status promptly.
SparkLMS uses intelligent logic to manage payment attempts, reducing the chance of consecutive returns in the first place. For existing customers in good standing, SparkLMS will attempt payments using the mode that has been historically successful, such as cash payments, customer-initiated payments, or checks.
For customers who do not fall into that category, the system schedules the first payment attempt for the evening, after verifying funds using live balance checks via integration with Chirp If the funds are insufficient, no further attempts are made on the same day. This feature ensures lenders avoid unnecessary multiple attempts that could count as consecutive returns, thereby protecting both borrower and lender.
In the case of checks, SparkLMS deposits them and monitors them for returns without reattempting them until compliance conditions are met.
Once a second consecutive payment return is registered, SparkLMS takes decisive action by halting all automated payment activities. This includes suspending existing collection workflows that could otherwise continue attempting payments.
No further payment attempts will occur until the borrower provides a new, digitally signed Payment Authorization. Once received, SparkLMS resumes the payment cycle while ensuring continued compliance with the Small Dollar Lending Rule. If a borrower requests to defer a payment or gets into a new Payment Plan, the system requires a new Payment Authorization before proceeding, ensuring all actions are transparent and compliant.
To support lenders’ internal compliance teams, SparkLMS has introduced a near real-time monitoring feature. This dashboard lets users track payment attempts, failures, and Payment Authorization status across the portfolio. In addition, a customizable report is available specifically for compliance officers, enabling them to audit and verify adherence to the CFPB’s new requirements.
These tools empower compliance teams to maintain oversight without getting bogged down in manual processes or fragmented data sources.
With the CFPB rule poised to become a defining standard in borrower protection, SparkLMS is ahead by providing lenders with a ready-made compliance framework. Instead of scrambling to build solutions in-house or relying on third-party patches, SparkLMS customers benefit from a seamlessly integrated platform that evolves with regulatory expectations.
Our goal has always been to minimize friction for both lenders and borrowers while maximizing trust, transparency, and compliance. The new features tied to the CFPB's two consecutive payment return rule are a testament to this mission. We believe regulatory compliance should not be a burden, and with SparkLMS, it isn’t.
Stay tuned for more updates as we continue to enhance our platform to meet the ever-evolving needs of the lending industry.