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The CFPB's Small Dollar Lending Rule brings sweeping changes to payment processing in March 2025, reshaping how lenders operate. IPG's technology empowers lenders to stay ahead with automated compliance and real-time monitoring that makes adapting to these changes seamless.
After years of uncertainty, the Consumer Financial Protection Bureau's Small Dollar Lending Rule is moving forward. This regulation focuses on payday loans, vehicle title loans, and high-cost installment loans, and will transform how lenders operate in these markets.
When the CFPB introduced the rule in 2017, it contained two main parts: mandatory underwriting requirements and a payment provision. Lenders would have needed to conduct thorough "ability to repay" assessments under the underwriting requirements, and follow new "two-strikes" guidelines under the payment provision. While the rule was supposed to take effect in 2019, legal challenges put everything on hold.
By July 2020, the CFPB had dropped the underwriting requirements completely. However, the payment provision survived. With the Supreme Court's recent decision in CFPB v. CFSA resolving questions about the CFPB's funding structure, the rule is now set to take effect on March 30, 2025 - though ongoing litigation could still affect this date.
Instead of focusing on specific loan amounts or product names, the rule applies to three main categories:
The payment provision addresses one of the biggest headaches in lending - what happens when payment withdrawals keep failing. The rule sets a firm limit: after two failed attempts to withdraw money, lenders must stop trying until they get new authorization from the borrower. This holds true whether the payment was attempted through ACH, debit card, or any other method on that account.
Consider this scenario: a lender attempts an ACH withdrawal that fails, then tries a debit card payment the next day that also fails. At this point, they need to stop trying to withdraw funds from that account. And this isn't limited to just the problem loan - it applies to all loans that borrower has with the lender.
Before making any new withdrawal attempts, lenders have two key requirements:
These rules cover both single payment attempts and recurring payment schedules. The goal is practical: stop borrowers from getting slammed with multiple bank fees and risking account closures when payments repeatedly fail.
The notification requirements form another key piece of the rule. Lenders must send three specific notices to borrowers:
While you can use text messages or push notifications to give borrowers extra reminders, these don't replace the official notices. Whether you send them by mail, email, or deliver them in person, each notice needs to clearly spell out when the payment is happening, how much it will be, and what payment method you'll use. Make sure borrowers have this information in a format they can save and refer back to later.
To prevent payment failures and stay compliant, your balance verification process needs to hit these key points:
Before Processing
Watch Your Timing
Handling Failed Payments
Small dollar lenders need payment processing that both works efficiently and meets CFPB requirements. We've built our solutions with a deep understanding of what makes lending operations work.
Streamlined Authorization
Our solution handles borrower authorizations from start to finish. Every consent action gets logged and stored securely, creating the audit trail you need. Whether your borrowers prefer ACH, debit, or credit payments, each authorization is documented automatically, reducing your paperwork and providing flexibility to lenders and borrowers.
Automated Tracking of Payment Attempts
Our strategy goes beyond basic payment tracking by using real-time bank data. Before processing any payment, we verify account ownership and check current balances. This means you know if funds are available before attempting withdrawals, helping prevent failed payments before they happen. The system even learns payment timing patterns, helping you process payments when they're most likely to succeed.
Built-in Compliance
We've built CFPB compliance into every part of our system. The platform tracks payment attempts across all channels automatically, preventing that third attempt after two fails. When payment patterns need attention, you'll know right away. As regulations change, your system updates automatically, keeping you current without extra work on your end.
Advanced Borrower Notifications
Our solution does more than just send required notices. It integrates real-time account data into borrower communications, sending balance alerts before scheduled payments and keeping everyone informed. Whether through email, text, or mail, borrowers get clear information about payment amounts, timing, and any account issues. This proactive approach reduces disputes and builds trust.
Open Banking Integration
Our IntegrityCHECK solution gives you deeper insight into borrower accounts. You'll see real-time balances and get early warnings about potential payment issues. The system analyzes cash flow patterns to help time payments more effectively. Account ownership verification happens instantly, cutting down on fraud while speeding up payment processing. All of this happens through secure, consent-based access that protects both you and your borrowers.
Payroll-Based Solutions
We also have a payroll-based payment strategy that provides an alternative to traditional account debits. By connecting directly with payroll systems, we can verify employment and income, then set up payments that come straight from paychecks. This approach sits outside many CFPB requirements while providing more reliable payments.
Risk & Fraud Management
Our risk management tools do more than just spot suspicious transactions. The system watches for unusual patterns across all payment channels, catching potential fraud before it impacts your business. We monitor account activity, payment patterns, and authorization changes to protect both you and your borrowers. This comprehensive approach means fewer chargebacks, reduced fraud losses, and more secure payment processing overall.
Solutions Built for Your Lending Business
Every lending operation has its own way of doing things. That's why we work directly with each lender to configure systems to match their specific needs. If you're running payday loans, we understand the unique timing requirements. For installment loans, we can handle complex payment schedules. Our solutions adapt to how you work, and they scale up smoothly as your business grows.
When you work with IPG, you're getting more than a payment processor. We've built our entire operation around understanding small dollar lending. Our team stays current with every CFPB regulation and industry change, translating complex requirements into practical solutions that work for your business.
Our technology reflects this deep industry knowledge. Instead of bolting compliance features onto standard payment processing, we've created systems specifically for small dollar lending. Every feature - from payment tracking to borrower communications - is designed to handle the unique demands of your business automatically.
We also understand that changing payment processors can be risky. That's why we've made integration straightforward. Our systems work with your existing loan management software, and we handle the technical details to ensure a smooth transition. Most lenders are up and running quickly, without disrupting their day-to-day operations.
The first step is understanding exactly how you handle payments today. Take a good look at your authorization process. Review how you track payment attempts. Check your notification systems. This review will show us where you might need to adjust.
The rule spells out specific requirements for borrower communications. You'll need a clear process for every type of notice - from telling borrowers about their first payment to alerting them when a payment fails. Think through each notification:
Your team needs practical training on these changes. Focus on the situations they'll face most often - handling payment authorizations, managing failed payments, sending the right notices at the right time. Regular practice with real scenarios works better than just reviewing rules.
Think about your payment partners too. You want someone who knows small dollar lending inside and out. Look for systems built specifically for CFPB compliance, not general payment processing that's been modified as an afterthought.
March 2025 will bring significant changes to small dollar lending. The lenders who come out ahead will be the ones who prepare now. Focus on building processes that protect both your business and your borrowers while keeping operations running smoothly.
Want to make sure you're ready? Talk with your legal team about what these changes mean for your specific business. The more you prepare now, the easier the transition will be.
This blog is for informational purposes only and does not constitute legal advice. Consult your legal counsel to ensure compliance with all applicable laws and regulations.