Alabama Money Transmitter Bond: A Comprehensive Guide

March 2, 2021

This guide provides information for insurance agents to help businesses obtain Alabama Money Transmitter Bonds

At a Glance:

• Average Cost: Between 0.5% to 5% of the bond amount per year, based on the transmitter’s credit
• Bond Amount: Determined on a case by case basis
• Who Needs It: All individuals and business entities seeking to obtain a money transmitter license in the State of Alabama
• Purpose: To ensure the public will receive compensation for any damages should the money transmitter fail to comply with licensing law
• Who Regulates Money Transmitters in Alabama: The Alabama Securities Commission

Background

Alabama Statute 8-7A-5 requires money transmitters operating in the state to obtain a license with the State Securities Commission. The Alabama legislature enacted the licensing laws and regulations to ensure that money transmitters engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, money transmitters must purchase and maintain a money transmitter surety bond to be eligible for licensure.

What is the Purpose of the Alabama Money Transmitter Bond?

Alabama requires businesses to purchase the Money Transmitter Bond as part of the application process to obtain a money transmitter license. The bond ensures that the public will receive compensation for financial harm if the transmitter fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the transmitter breaks licensing laws.

How Can an Insurance Agent Obtain an Alabama Money Transmitter Surety Bond?

BondExchange makes obtaining an Alabama Money Transmitter Bond easy. Simply login to your account and use our keyword search to find the “transmitter” bond in our database. Don’t have a login? Enroll 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.

How Does the Alabama Securities Commission Determine the Bond Amount?

The Alabama Securities Commission will determine the limit on the money transmitter bond on a case by case basis. Alabama Statute 8-7A-7 states that the bond limit must not be less than “($100,000), or the average daily outstanding obligations for money received for transmission in Alabama plus 50 percent of the average daily outstanding payment instrument and stored value obligations in Alabama, whichever is greater.” If the money transmitter suffers a loss in net worth or other financial loss, the Securities Commission may increase the bond amount to a maximum of $5,000,000

Is a Credit Check Required for the Alabama Money Transmitter Bond?

Surety companies will run a credit check on the owners of the money transmission company to determine eligibility and pricing for the Alabama Money Transmitter bond. Transmitters with excellent credit and work experience can expect to receive the best rates. Transmitters 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 transmitter’s credit.

How Much Does the Alabama Money Transmitter Bond Cost?

The Alabama Money Transmitter surety bond can cost anywhere between 0.5% 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 $100,000 bond requirement.

$100,000 Money Transmitter Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Alabama Define “Money Transmission”?

Alabama Statute 8-7A-2 defines money transmission as “selling or issuing payment instruments, stored value, or receiving money or monetary value for transmission. The term does not include the provision solely of delivery, online or telecommunications services, or network access.”

How Do Money Transmitters Apply for a License in Alabama?

Businesses in Alabama must navigate several steps to secure their Money Transmitter license. Below are the general guidelines, but businesses should refer to the Securities Commission’s Licensing Page for details on the process.

License Period – The Alabama Money Transmitter License expires on March 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the Alabama Money Transmitter License must first amass a company net worth (assets – liabilities) of at least $25,000. Businesses must submit financial statements verifying their net worth when submitting their license application.

Step 2 – Request a NMLS Account

The Alabama Money Transmitter 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 3 – Complete the Application

All Alabama Money Transmitter License applications can be completed online through the NMLS. Applicants must complete entire the application, including the following steps:

3.a Submit a list of all proposed authorized delegates and the location they will conduct business activities

3.b Submit a sample contract used by any authorized delegates to form a contractual agreement with consumers

3.c Submit an audited financial statement from the previous fiscal year as well as an unconsolidated financial statement verifying the company’s net worth

3.d All first time applicants must pay the following fees when submitting their license application:

• • $500 filing fee
  • $500 license fee

Step 4 – Purchase a Surety Bond

After submitting the license application, the Securities Commission will determine the required bond limit the money transmitter must obtain. Money transmitters must purchase and maintain a money transmitter surety bond prior to being issued their license.

How Do Businesses Renew The Alabama Money Transmitter License?

Money transmitters can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Alabama Money Transmitter License expires on March 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Alabama Money Transmitter License?

The State of Alabama does not require businesses to obtain any form of liability insurance as a prerequisite to obtaining a Money Transmitter License. Businesses must purchase and maintain a money transmitter surety bond.

How Do Alabama Money Transmitters File Their Bond?

Money transmitters should submit the completed bond form, including the power of attorney, electronically through the NMLS. The money transmitter surety bond requires signatures from both the surety company that issues the bond and the money transmitter. The surety company should include the following information on the bond form:

• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name and state of residence
• Bond amount
• Date the bond is signed and goes into effect

What Can Businesses Do to Avoid Claims Against the Alabama Money Transmitter Bond?

To avoid claims on the Money Transmitter Bond, businesses must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Do not engage in criminal activity such as money laundering
• Ensure the full payment of all funds to users of your service

What Other Insurance Products Can Agents Offer Money Transmitters in Alabama?

Alabama does not require money transmitters to obtain any form of liability insurance. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability or workers’ compensation insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Alabama Money Transmitter Customers?

The NMLS conveniently provides a public database to search for active money transmitters in Alabama. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

What other Financial Service Bonds are Required in Alabama?

Alabama requires businesses to purchase specific bonds correlating with their license type. Below are all the different financial services bonds required by the State of Alabama:

• Sale of Checks: $10,000 for a single location plus an additional $5,000 for each additional location. The bond limit may not exceed $50,000
• Small Loan Company: $1,000 bond limit
• Mortgage Broker: Custom bond limit