What is a Consumer Finance Loan Company Bond?
Surety bonds are often used in consumer finance to protect customers and ensure loan companies and other financial institutions operate within the rules and regulations governing their industry.
A consumer finance loan company bond is one such surety bond. Designed to protect the consumer, this license and permit bond guarantees that the public will be compensated if the consumer loan company they’ve borrowed from breaks the law.
Consumer finance loan company bonds are commonly used in Florida. In May 2020, the Florida Senate amended the provisions relating to the making of consumer finance loans. According to the new rules, consumer finance companies applying for a license to make and collect loans under the Florida Consumer Finance Act (FCFA) can now provide certain documents in lieu of evidence of liquid assets or net worth.
These documents can include a certificate of deposit, an irrevocable letter of credit or a consumer finance loan company surety bond. If a lender doesn’t act within the law, the consumer can make a claim against the surety bond and can then be compensated up to the full bond amount.
Examples of an infringement that could result in a claim being made against a loan include charging borrowers a prepayment penalty for paying all or part of a loan’s principal before the payment due date.
Questions about Consumer Finance Loan Company Bond
Do I Need a Consumer Finance Loan Company Bond?
If you own a company that offers consumer loans, you may well need to purchase a consumer finance loan company bond. A consumer loan is any type of loan made to a consumer by a creditor. Examples of a consumer loan include
- A mortgage loan
- A student loan
- An auto loan
- A refinancing loan
- A payday loan
- A credit card loan
If you’re the loan originator, rather than the mortgage broker, real estate broker, motor vehicle dealership or other third party, you’ll need to purchase and maintain a consumer finance loan company bond as part of the licensure process unless you have other evidence of liquid assets.
Your surety bond is an integral part of the license issuance process and you’ll need to supply evidence of it as part of your initial application to your licensing body. You may also need to have a physical location for your business in order to meet licensing requirements. In most cases, a license fee and application form will need to be submitted before your license will be issued.
If you’re unsure whether or not you need a consumer finance loan company bond, contact your licensing body or secretary of state to learn more about the rules and regulations in your area.
How Much Does a Consumer Finance Loan Company Bond Cost?
According to the amended finance act, companies offering consumer credit need to purchase and maintain a surety bond with a value of $25,000. This bond will need to be renewed one calendar year from the initial purchase date. Further surety bonds may be required for subsidiaries. Check with your professional licensing body, for example the NMLS, to find out more.
Failure to purchase or maintain a consumer finance loan company bond could result in your business facing disciplinary action by the licensing body.
How Can I Apply for a Consumer Finance Loan Company Bond?
If you don’t have an exemption from the new regulations, you’ll need to apply for a bond whether you’re making a new application or renewing an existing license application.
You can apply for a bond by contacting a surety bond company and requesting a free, no obligation quote. If you’re happy with your quote, you’ll need to fill in the online application forms to start the bonding process.
Your chosen surety company will need various pieces of financial information in order to give you an accurate idea of your bond cost. This could include a financial statement, an annual report and a credit check.
The bond cost, or bond premium, is the amount you’ll pay every year in order to maintain your surety bond. It will be a fraction of the total bond amount. In general, the better your credit score is, the lower your bond premium will be.
Some surety companies offer specially designed programs for applicants with poor credit. These bad credit surety bonds generally cost considerably more, however, they will allow you to secure your professional license and start work, so the extra expense could well be worth it.
Once you’ve submitted your completed application, your surety bond company will process the paperwork and issue your surety bond. You can then apply for your consumer finance loan company license.
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