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Michigan requires individuals and companies that collect consumer debt on behalf of creditors to be licensed as collection agencies by the Michigan Department of Licensing and Regulatory Affairs (LARA). Purchasing a Michigan collection agency bond is a requirement for getting and keeping a collection agency license.
The bond is a collection agency’s pledge to operate in compliance with all applicable Michigan statutes and regulations governing the consumer debt collection industry. Violations causing financial harm to the state, the agency’s clients, or consumers give the injured party the right to file a claim and be compensated for their loss.
The bonding requirement applies to every applicant for licensing as a collection agency in the state of Michigan. Both the collection agency license and the Michigan collection agency bond must be renewed yearly. Without a bond in force at all times, the collection agency license can be suspended or revoked.
The required bond amount (the bond’s “penal sum”) for the first year of licensure is $5,000. At each subsequent renewal, that amount is recalculated based on the licensee’s average monthly collections.
There are three parties to the surety bond agreement underlying a Michigan collection agency bond:
A principal’s use of unlawful or unethical collection methods and failure to remit funds collected from consumers to the principal’s clients are both valid violations that can result in a claim.
While the terms of the surety bond agreement give sole legal responsibility for paying claims to the principal, in practice, the surety usually pays claimants directly on behalf of the principal. This is a matter of extending credit to the principal to cover a claim, which creates a debt that the principal is legally obligated to repay.
The surety charges an annual premium for a Michigan collection agency bond that is a small percentage of the bond’s penal sum. The premium rate is predicated largely on the principal’s willingness and ability to repay the surety for credit extended to the principal for the payment of claims. Consequently, the surety’s underwriters will take into account the principal’s credit score, financial stability, and prior industry experience.
The better the principal’s credit and financial standing, the lower the premium rate. Those with very good credit will qualify for the standard market surety bond rate of one to three percent. Principals with lesser credit, little experience, or a history of past claims will pay a higher premium rate.
Request a convenient online quote today, or discuss your Michigan collection agency bond needs with one of our experienced surety bond specialists.