Collection Agency Surety Bond

Collection agencies are generally required by the states in which they operate to acquire a surety bond before they can do business. This is mostly because such agencies routinely handle very sensitive information for their clients, so it's necessary to take some steps to ensure privacy and sensitivity in handling that information.

A collection agency bond is sometimes also called a debt collector bond, and it's a specific kind of surety bond, which guarantees that you will observe all the appropriate rules and regulations of your profession in the conduct of your operations. It also guarantees that you will repay a surety company should an obligee make a claim against your bond, which the surety company would initially have to payout.

How does a collection agency bond work?

In the event that an obligee files a claim against your collection agency surety bond, it will mean that they feel you have not lived up to the obligations that go along with licensing in your profession. Anyone at all who has used your services can make a complaint seeking restitution from the bond, in an amount up to the total value of the bond itself. Some possible grounds for making a claim against a collection agency surety bond are discrimination, theft, fraud, or misuse of funds, as well as overcharging of clients.

A claim can be filed against a bond at any time that the bond is active. Once a claim is filed, the surety company will conduct an investigation to determine the validity of the claim. If the claim is found to be a valid one, the surety company will expect your agency to make good on that claim. If your agency fails to pay the amount of the claim, the surety company will step in and pay it on your behalf, but it will then expect repayment from your agency and will pursue any means necessary to receive reimbursement for that amount.

What if you aren't properly bonded?

If your debt collection agency is not properly bonded, you could be found liable in a lawsuit brought against you by a claimant. With no surety company acting on your behalf, you would then be fully liable for any amount that the courts decided was proper to award the plaintiff. In addition, if you lack the proper collection bond required by your state, you could face severe penalties of a financial nature, and you could be prevented from conducting operations indefinitely within state borders. This makes it very important for any collection business to be properly bonded, so that business can be conducted legally and professionally, without being subject to extreme financial setbacks.

How much does a collection agency bond cost?

The cost of a collection agency bond will always be at least $100 since that is a standard cost imposed by most states requiring this type of bond. For $100, your agency would receive as much as $10,000 in surety insurance coverage, and if your particular organization required a higher level of insurance, you can expect to pay a correspondingly higher amount as a premium.

You can also expect to pay a higher premium rate if your company has a poor credit history, or if it has not been in business for very long. Since such operations represent a greater risk to a bonding company, that risk must be mitigated by passing along a higher premium for the cost of a collection bond.

How do I get a collection agency bond?

The first step in acquiring a collection bond is to contact the specific department within your state, which oversees collection agencies and to inquire about whether or not such a bond is required in your state. Assuming you are required to obtain a bond, you then have to submit an application to become registered in that state.