California Credit Service Organization Bond: A Comprehensive Guide

March 15, 2021

This guide provides information for insurance agents to help credit service organizations obtain California Credit Service Organization Bonds

At a Glance:

• Average Cost: Between $1,000 to $7,500 per year based on the bond applicant’s credit
• Bond Amount: $100,000
• Who Needs It: All business entities seeking to register as a credit service organization in the State of California
• Purpose: To ensure the public will receive compensation for any damages should the credit service organization fail to comply with registration law
• Who Regulates Credit Service Organizations in California: The California Secretary of State

Background

California Civil Code section 1789.25 requires credit service organizations operating in the state to obtain a registration with the California Secretary of State. The California legislature enacted the registration laws and regulations to ensure that credit service organizations engage in ethical business practices. In order to provide financial security for the enforcement of the registration law, credit service organizations must purchase and maintain a $100,000 credit service organization surety bond or deposit cash to be eligible for registration.

What is the Purpose of the California Credit Service Organization Bond?

California requires businesses to purchase the Credit Service Organization Bond as part of the application process to obtain a credit service organization registration. The bond ensures that the public will receive compensation for financial harm if the business fails to comply with the registration regulations. In short, the bond is a type of insurance that protects the public if the business breaks registration laws.

How Can an Insurance Agent Obtain a California Credit Service Organization Surety Bond?

BondExchange makes obtaining a California Credit Service Organization Bond easy. Simply login to your account and use our keyword search to find the “credit” 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.

Is a Credit Check Required for the California Credit Service Organization Bond?

Surety companies will run a credit check on the owners of the credit service organization to determine eligibility and pricing for the California Credit Service Organization 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 California Credit Service Organization Bond Cost?

The California Credit Service Organization surety bond can cost anywhere between $1,000 to $7,500 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 the $100,000 bond requirement.

*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 California Define “Credit Service Organization”?

California Civil Code Section 1789.25 defines a credit service organization as any business entity who performs one or more of the following services:

• Improves a consumer’s credit record, history, or rating.
• Obtains a loan or other extension of credit for a consumer.
• Assists the consumer in improving their credit or obtaining a loan

Exemptions to this definition include:

• Any person holding a license to make loans or extensions of credit pursuant to the laws of California or the United States who is subject to regulation and supervision with respect to the making of those loans or extensions of credit by an official or agency of California or the United States and whose business is the making of those loans or extensions of credit.
• Any bank or savings institution whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation.
• Any person licensed as a prorater by the Department of Business Oversight when the person is acting within the course and scope of that license.
• Licensed real estate brokers
• Any attorney licensed to practice law in this state, unless the attorney is an employee of, or otherwise directly affiliated with, a credit services organization.
• Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission
• Any nonprofit organization

How Do Credit Service Organizations Apply for Registration in California?

Businesses in California must navigate several steps to secure their credit service organization registration. Below are the general guidelines, but businesses should refer to the application form for details on the process.

Registration Period – The California Credit Service Organization registration expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond or Deposit Cash

Credit service organizations must purchase and maintain a $100,000 credit service organization bond or deposit cash

Step 2 – Form a Business Entity

Applicants for the Credit Service Organization Registration must form a business entity and register with the California Secretary of State prior to submitting their registration application

Step 3 – Establish a Business Location

Credit service organizations are required to establish a place of business in a non-residential property

Step 4 – Complete the Application

All California Credit Service Organization Registration applications should be mailed to the following address:

Department of Justice
Attorney General’s Office
P.O. Box 85266
San Diego, CA 92186-5266

Credit service organizations must complete the application in its entirety, and submit the following documents:

• • All advertisements, including online, direct mail and transcripts of any radio/television advertisements
  • All sales presentation materials, sales scripts, and and sales training materials
  • Audio recordings of sales and servicing calls
  • Documents provided to potential buyers, including:
    • Contracts
    • Notice of Cancellation
    • Information Statement
    • All other documents a buyer is required to sign
  • A financial statement that is not more than three months old

Credit service organizations must pay a $100 filing fee when submitting their registration application.

How Does a California Credit Service Organization Renew Their Registration?

Credit Service Organizations should mail their completed renewal application to the following address:

Department of Justice
Attorney General’s Office
P.O. Box 85266
San Diego, CA 92186-5266

The California Credit Service Organization registration expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the California Credit Service Organization Registration?

The State of California does not require business to obtain any form of liability insurance as a prerequisite to obtaining a Credit Service Organization Registration. Businesses must purchase and maintain a $100,000 credit service organization surety bond.

How Do California Credit Service Organizations File Their Bond?

Credit service organizations should mail the completed bond form, including the power of attorney, to the following address:

Secretary of State
P.O. Box 942807
Sacramento, CA 94277-2870

The credit service organizations surety bond requires signatures from both the surety company that issues the bond and a representative from the credit service organization.The surety company should include the following information on the bond form:

• The premium on the bond
• Bond term
• Legal name and address of entity/individual(s) buying the bond
• Surety company’s name and state of residence
• Date the bond is executed

What Can Businesses Do to Avoid Claims Against the California Credit Service Organization Bond?

To avoid claims on the Credit Service Organization Bond, businesses must follow all registrations 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
• Honor all contractual agreements made with consumers

What Other Insurance Products Can Agents Offer Credit Service Organizations in California?

California does not require credit service organizations 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 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 California Credit Service Organization Customers?

California conveniently provides a public database to search for active check sellers in the state. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing service