The Challenger's damage perk, Close Quarters, is working incorrectly with direct damage mods (and has been since at least the 08/04/2023 patch). It seems to snapshot the player's location when they equip the mod to determine the damage bonus rather than it being based on the player's distance from the enemy like it should be (and is, for other types of damage). Because of this, melee-focused mod builds aren't able to make full use of Challenger, which is a shame since it is a playstyle I otherwise really enjoy.
This can be easily replicated by equipping a mod like Prismatic Driver near a dummy on one side of the training area, then walking to the dummy on the opposite end (I have tested this out in the field against actual enemies just to make sure it isn't a quirk of the dummies or ward 13 somehow). As shown in the screenshots, I am getting the full damage bonus when shooting across the field to the dummy I was near when I equipped the mod, but the minimum bonus when shooting the dummy right next to me.