Surety bonds are required in most states before debt collectors can get their license. Bonding is tricky since requirements differ across state lines and state legislation is always subject to change. However, surety bonding requirements are important to understand—even if you’ve been around for years. No one is immune to claims and it’s easy to overlook small requirements.
Issues When Getting Licensed and Bonded in A New State
It’s an issue if you need to file for a new license in another state, but you aren’t familiar with that new state’s requirements. There are a few scenarios where you’d need to get a new license. For example, you may need to get a new license in the state of California if the Debt Collection Licensing Act (SB 908) passes. This new act requires licensees to have a bond with a minimum amount of $25,000. Depending on your state, this may be much less than your current debt collector’s surety bond amount.
In addition to your state’s bonding amount, you’ll need to stay on top of that state’s requirements when filling for a license in a new state. Any violation can result in a claim on your bond. Actions like fraud and theft are simple enough for ethical debt collectors to follow. However, more specific requirements are what can land debt collectors in hot water.
Using California again as an example, collectors must include their California license number in at least 12-point type in all written or digital communication. This is an easy rule to violate if you’re not reading the fine print and didn’t need to do this for other states.
The best way to stay ahead of licensing and bonding issues is to keep up with legislation and see what you may be required to do in the future. That way, you give yourself time to prepare documents and get familiar with any new requirements to avoid claims. You can also let your surety agency know of any upcoming needs in the future if you ever need to file for a new license. If your surety agency already works with bonds in multiple states, you can also work with them to get additional information on state requirements.
After familiarizing yourself with new requirements, you should also make sure your entire agency is on top of any changes. Communicate any new or updated requirements in writing and encourage them to ask questions if anything isn’t clear. Investing time to educate and prepare your team can make a difference in preventing claims and lawsuits.
Common Issues That Can Result in Surety Bond Claims
A claim can be filed on your surety bond if you violate any requirements you agreed to follow when you applied for your license. Since a claim is seperate from a lawsuit, you can expect to pay a lot, sometimes to separate entities, if someone on your team makes a mistake.
Every year, the Consumer Financial Protection Bureau (CFPB) puts out a report on the Fair Debt Collection Practices Act. The CPFB received more than 75,000 complaints in 2019. In that report they outlined the most common consumer debt collection complaints reported by consumers:
- Attempts to collect debt not owed: 45%
- Written notification about debt: 18%
- Took or threatened to take negative or legal action: 12%
- Communication tactics: 12%
- False statements or representations: 11%
- Threatened to contact someone or share information improperly: 3%
Although the above complaints aren’t a measure of surety bond claims, these are all valid reasons for someone to file a claim on your bond. As we all know, there are lots of rules in place that collectors must follow to ensure fair and ethical collection takes place.
These rules aren’t new, but you might not have known that you can get a claim on your bond. You also may not have known that you must fully pay any valid claims on your bond in addition to any fees, penalties and lawsuits you’re served.
The best way to avoid bond claims is to work with a surety agency that will advocate on your behalf from the beginning. Think back to when you got your surety bond. Did they take the time to educate you on what a surety bond is, its benefits, how the claims process works and how to avoid claims?
If you answered “no” to at least one of those questions, then it’s time to get the answers to those questions and potentially find a new surety agency. Unfortunately, some surety agencies may not have your best interests in mind. They may not take the time to educate you on the regulations you have to follow and guarantees you’re agreeing to from the start.
On top of that, not all surety agencies will advocate for you if a claim is filed. This may be due to a lack of expertise to understand the claims process or a lack of staff to work on claims. Validating a claim can add lots of time and stress to your plate along with unnecessary costs if a claim turns out to be invalid.
Understanding the laws in all jurisdictions you work in, knowing the specific terms of your surety bond and working with a professional surety agency with your best interests in mind are the main ways you can steer clear of bonding issues and claims.