Pennsylvania Debt Management Company Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain Pennsylvania Debt Management Company Bonds
At a Glance:
- Lowest Cost: 1.5% of the bond amount per year based on the applicant’s credit
- Bond Amount: Based on the amount of consumer funds held (more on this later)
- Who Needs it: All debt management companies operating in Pennsylvania
- Purpose: To ensure the public will receive compensation for any damages should the debt management company violate licensing law
- Who Regulates Debt Management Companies In Pennsylvania: The Pennsylvania Department of Banking and Securities
Background
The Pennsylvania Debt Management Services Act requires all debt management companies operating in the state to obtain a license with the Department of Banking and Securities. The Pennsylvania legislature enacted the licensing laws and regulations to ensure that debt managers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, debt managers must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the Pennsylvania Debt Management Company Bond?
Pennsylvania requires debt management companies to purchase a surety bond as part of the application process to obtain a business license. The bond ensures that the public will receive compensation for financial harm if the debt management company fails to comply with the regulations set forth in the Pennsylvania Debt Management Services Act. Specifically, the bond protects the public in the event the debt manager engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the debt management company breaks licensing laws.
How Can an Insurance Agent Obtain a Pennsylvania Debt Management Company Surety Bond?
BondExchange makes obtaining a Pennsylvania Debt Management Company Bond easy. Simply login to your account and use our keyword search to find the “debt” bond in our database. Don’t have a login? Gain access now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
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How is the Bond Amount Determined?
The Pennsylvania Debt Management Services Act dictates that the limit on the Debt Management Company Bond must be in an amount greater than the total amount of Pennsylvania consumer funds that are held either directly or in a trust account. For example, if a debt management company has $25,000 of funds being held from Pennsylvania consumers, then they must purchase a bond with a minimum limit of $25,001.
Is a Credit Check Required for the Pennsylvania Debt Management Company Bond?
Surety companies will run a credit check on the owners of the debt management company to determine eligibility and pricing for the Pennsylvania Debt Management Company bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the owner’s credit.
How Much Does the Pennsylvania Debt Management Company Bond Cost?
The Pennsylvania Debt Management Company Bond can cost anywhere between 1.5% to 5% of the bond amount per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on a $25,000 bond requirement.
| Credit Score | Bond Cost (1 year) | Bond Cost (1 month) |
|---|---|---|
| 800+ | $375 | $38 |
| 650 – 799 | $500 | $50 |
| 600 – 649 | $1,000 | $100 |
| 450 – 599 | $1,250 | $125 |
How Does Pennsylvania Define “Debt Management Company?”
The Pennsylvania Debt Management Services Act defines a debt management company as any business entity that periodically receives funds from consumers and then uses those funds to repay the consumer’s creditors.
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
How Do Debt Management Companies Apply for a License in Pennsylvania
Debt management companies in Pennsylvania must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the NMLS’s application guidelines for details on the process.
Non-profit organizations that provide debt management services and who charge annual fees that are less than $3,000,0000 will submit a separate application which can be found here. The applications are virtually identical, however nonprofits are only required to pay a licensing fee of $500. The remainder of this section will focus on the application process for profit-driven organizations
License Period – The Pennsylvania Debt Management License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Debt management companies must purchase and maintain a surety bond (limits outlined above)
Step 2 – Purchase Insurance
Pennsylvania requires debt management companies to purchase liability insurance or fidelity bond coverage. The recommended limit is $250,000
Step 3 – Request an NMLS Account
The Pennsylvania Debt Management Company License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, applicants must first request to obtain an NMLS account.
Step 4 – Complete the Application
All Pennsylvania Debt Management Company License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
-
- Audited company financial statements prepared by a CPA
- Company business plan containing the following information:
- Marketing strategy
- Products
- Target markets
- Operating structure
- Company formation documents
- PA background check form
- Tax certification
- Company management and organizational charts
- Proof of accreditation by an approved independent accrediting organization
- Copies of all advertisements the company intends to use
- List of all policies and procedures used to receive and process consumer complaints
- Information regarding all company trust accounts
- Sample of the company’s debt management services agreement
- List of any third party servicers utilized (if applicable)
- Detailed description and copies of the company’s consumer education program
- List of all company credit counselors
- Change of status certification form
- List of other states the company is a licensed debt manager
- Description of all debt management services provided to consumers prior to licensure
Debt management companies must pay a $2,000 fee, plus an additional $15 credit report per control person, when submitting their license application.
How Do Pennsylvania Debt Management Companies Renew Their License?
Debt management companies can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Pennsylvania Debt Management License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Pennsylvania Debt Management Company License?
Pennsylvania requires debt management companies to purchase either liability insurance or fidelity coverage as a prerequisite to obtaining a business license. The recommended limit is $250,000. Debt management companies must purchase and maintain a surety bond (limits outlined above).
How Do Pennsylvania Debt Management Companies File Their Bond?
Debt management companies should submit the completed bond form, including the power of attorney, electronically through the NMLS. The surety bond requires signatures from both the surety company that issues the bond and a representative from the debt management company. The surety company should include the following information on the bond form:
- Name, address, and phone number of entity/individual(s) buying the bond
- Surety company’s name, address, and phone number
- Bond amount
- Date the bond is signed
What Can Pennsylvania Debt Management Companies Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, debt management companies in Pennsylvania must ensure that they follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Do not engage in any acts of fraud
- Do not breach any contracts made with consumers
What Other Insurance Products Can Agents Offer Debt Management Companies in Pennsylvania?
Pennsylvania requires debt management companies to purchase either liability insurance or fidelity coverage as a prerequisite to obtaining a business license. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here. To obtain a fidelity bond, contact Bondexchange.
How Can Insurance Agents Prospect for Pennsylvania Debt Management Company Customers?
The NMLS conveniently provides a public database to search for active debt management companies in Pennsylvania. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.
