California Check Seller Bond: A Comprehensive Guide

March 16, 2021

This guide provides information for insurance agents to help check sellers obtain California Check Seller Bonds

For information regarding the California Bill Payer Bond, click here. To learn more about the California Prorater Bond, click here.

At a Glance:

• Average Cost: 
  • $500,000 business license bond: Between $7,500 to $37,500 per year based on the check seller’s credit
  • $50,000 fidelity bond: $100 per year
• Bond Amount: Check sellers must purchase a $500,000 business license bond and a $50,000 fidelity bond
• Who Needs It: All business entities seeking to obtain a check seller license 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 Check Sellers in California: The California Department of Financial Protection and Innovation

Background

California Statute 12200 requires check sellers operating in the state to obtain a license with the Department of Financial Protection and Innovation. The California legislature enacted the licensing laws and regulations to ensure that check sellers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, check sellers must purchase and maintain both a $500,000 license bond and a $50,000 fidelity bond to be eligible for licensure.

What is the Purpose of the California Check Seller Bond?

California requires businesses to purchase the Check Seller Bond as part of the application process to obtain a check seller license. The bond ensures that the public will receive compensation for financial harm if the business fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the business breaks licensing laws.

How Can an Insurance Agent Obtain a California Check Seller Surety Bond?

BondExchange makes obtaining a California Check Seller Bond easy. Simply login to your account and use our keyword search to find the “check” 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.

Can Check Sellers Decrease Their Bond Amount?

Check sellers who have a net worth at least $1 million, with a minimum of $150,000 in liquid assets, may decrease the limit of their business license bond to $100,000.

Is a Credit Check Required for the California Check Seller Bond?

Surety companies will run a credit check on the owners of the check selling business organization to determine eligibility and pricing for the California Check Seller 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 Check Seller Business License Bond Cost?

The California Check Seller Business License surety bond can cost anywhere between $7,500 to $37,500 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 $500,000 bond requirement.

$500,000 Check Seller Business License 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 Much Does the California Check Seller Fidelity Bond Cost?

The $50,000 California Check Seller Fidelity bond costs just $100 per year.

How Does California Define “Check Seller”?

The California Department of Financial Protection and Innovation defines a check seller as any business entity “that sells checks, money orders, or drafts to be used by others for the payment of obligations and the transfer of money.”

How Do Check Sellers Apply for a License in California?

Businesses in California must navigate several steps to secure their check seller license. Below are the general guidelines, but businesses should refer to the application form for details on the process.

Step 1 – Meet the Net Worth Requirements

Applicants for the California Check Seller License must first amass a net worth (assets – liabilities) of at least $500,000, with liquid assets of at least $150,000

Step 2 – Purchase a Surety Bond

Check sellers must purchase and maintain both a $500,000 business license and a $50,000 fidelity surety bond to be eligible for licensure

Step 3 – Form a Business Entity

Applicants for the check seller license must form a business entity and register with the California Secretary of State prior to submitting their license application

Step 4 – Complete the Application

All California check seller license applications should be mailed to the following address:

Department of Financial Protection and Innovation
Financial Services
320 W. 4th Street, Suite 750
Los Angeles, CA 90013

Check sellers must complete the application in its entirety, and submit the following documents:

• • Corporate resolution authorizing the filing of the application
  • Statement of Identity for each company owner
  • Personal financial statements of each company owner
  • Copy of the articles of incorporation/organization and any bylaws/amendments
  • Company financial statement
  • Copy of each document to be used in the check seller’s business
  • Schedule of fees to be charged
  • Statement from every owner, company officer, and managing employee verifying they have read the Check Sellers, Bill Payers and Proraters Law and the Commissioner’s Rules

Check sellers must pay a $250 fee when submitting their license application

What Are the Insurance Requirements for the California Check Seller License?

The State of California does not require business to obtain any form of liability insurance as a prerequisite to obtaining a check seller license. Businesses must purchase and maintain both a $500,000 business license and a $50,000 fidelity surety bond.

How Do California Credit Check Sellers File Their Bond?

Check sellers should mail the completed bond form, including the power of attorney, to the following address:

Department of Financial Protection and Innovation
Financial Services
320 W. 4th Street, Suite 750
Los Angeles, CA 90013

The check seller surety bond requires signatures from both the surety company that issues the bond and a representative from the check selling organization.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 address
• Bond amount
• Date the bond goes into effect

What Can Businesses Do to Avoid Claims Against the California Check Seller Bond?

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

• Do engage in any acts of fraud
• Properly allocate all funds received
• Pay all required taxes and fees on time and in full

What Other Insurance Products Can Agents Offer Check Sellers in California?

California does not require check sellers 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 Check Seller 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