Michigan Collection Agency Bond: A Comprehensive Guide
June 22, 2021
This guide provides information for insurance agents to help their customers obtain Michigan Collection Agency Bonds
At a Glance:
- Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
- Bond Amount: Between $5,000 to $500,000 (more on this later)
- Who Needs it: All collection agencies operating in Michigan
- Purpose: To ensure the public will receive compensation for any damages should the collection agency fail to comply with licensing law
- Who Regulates Collection Agencies in Michigan: The Michigan Department of Licensing and Regulatory Affairs
Background
Michigan statute 339.04 requires all collection agencies operating in the state to obtain a license with the Department of Licensing and Regulatory Affairs. The Michigan legislature enacted the licensing laws and regulations to ensure that collection agencies engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, collection agencies must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the Michigan Collection Agency Bond?
Michigan requires collection agencies 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 collection agency fails to comply with the regulations set forth in Michigan statutes 339.901-920. Specifically, the bond protects the public in the event the collection agency fails to properly account for all funds collected. In short, the bond is a type of insurance that protects the public if the collection agency breaks licensing laws.
How Can an Insurance Agent Obtain a Michigan Collection Agency Surety Bond?
BondExchange makes obtaining a Michigan Collection Agency Bond easy. Simply login to your account and use our keyword search to find the “collection” 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 is the Bond Amount Determined?
Michigan statute 339.907 grants the Department of Licensing and Regulatory Affairs (DLRA) the authority to determine the limit of the Michigan Collection Agency bond on a case by case basis. The limit on the collection agency bond is $5,000 for the agency’s first year in business, and will be increased based on the agency’s average monthly business as reported on their annual report. The bond amount may not be less than $5,000 and may not exceed $500,000.
Is a Credit Check Required for the Michigan Collection Agency Bond?
Surety companies will run a credit check on the owner’s of the collection agency to determine eligibility and pricing for the Michigan Collection Agency 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 Michigan Collection Agency Bond Cost?
The Michigan Collection Agency bond can cost anywhere between 0.75% 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.
$25,000 Collection Agency Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 700+ | $188 |
| 650 – 699 | $250 |
| 625 – 649 | $313 |
| 600 – 624 | $470 |
| 550 – 599 | $1,000 |
| 450 – 549 | $1,250 |
How Does Michigan Define “Collection Agency?”
Michigan statute 339.901 defines a collection agency as any business entity that collects or attempts to collect a claim owed to another party or who repossesses property on behalf of a third party.
Exemptions to this definition include:
- Employees working for a company where all collections are done in the company’s name
- A state or nationally chartered bank that collects its own claims
- Trust companies that collect their own claims
- Savings and loan associations that collect their own claims
- Credit unions that collect their own claims
- Abstract companies engaged in escrow business
- Licensed real estate brokers and salespersons
- Public officers acting under court orders
- Attorneys handling claims on behalf of a client but in their own name
- Forwarding agencies
How do Collection Agencies Apply for a License in Michigan?
Collection agencies in Michigan must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the application form for details on the process.
License Period – The Michigan Collection Agency License expires on June 30 of each year and must be renewed before the expiration date
Step 1 – Become a Licensed Collection Agency Manager
Collection agencies in Michigan must employ a licensed collection agency manager at each licensed office location. Any company owner, partner, or officer is eligible to apply for licensure as a collection agency manager. To become licensed, collection agency managers must complete the following steps:
1.a Meet the Prerequisite Requirements
-
- Has a high school diploma or equivalent
- Has at least six months of experience in the collection of accounts
- Has passed the required licensure examination
- Is at least 18 years of age
- Is of good moral character
1.b Complete the Application
Collection agency managers must complete the licensure application in its entirety, and submit the application along with the collection agency company application.
Step 2 – Purchase a Surety Bond
First time Collection Agency License applicants must purchase and maintain a $5,000 surety bond. When renewing their license, collection agencies may need to increase their bond amount if their average monthly revenue increases (see above for more information on the bond limit). Repossessors must purchase a $10,000 surety bond.
Step 3 – Complete the Application
All collection agency regulatory license applications must be mailed to the following address:
Bureau of Professional Licensing
PO Box 30670
Lansing, Michigan 48909
Collection agencies must complete the application in its entirety, and pay a $225 renewal fee.
How Do Michigan Collection Agencies Renew Their License?
Collection agencies should mail their completed renewal application, including a $245 renewal fee, to the following address:
Bureau of Professional Licensing
PO Box 30670
Lansing, Michigan 48909
The Michigan Collection Agency License expires on June 30 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Michigan Collection Agency License?
The State of Michigan does not require collection agencies to obtain any form of liability insurance as a prerequisite to obtaining a business license. First time Collection Agency License applicants must purchase and maintain a $5,000 surety bond. When renewing their license, collection agencies may need to increase their bond amount if their average monthly revenue increases (see above for more information on the bond limit). Repossessors must purchase a $10,000 surety bond.
How Do Michigan Collection Agencies File Their Bond?
Collection agencies should mail the completed bond form, including the power of attorney, to the following address:
Bureau of Professional Licensing
PO Box 30670
Lansing, Michigan 48909
The collection agency surety bond requires signatures from both the surety company that issues the bond and a representative from the collection agency. 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 incorporation
- Bond amount
- Date the bond is signed
What Can Michigan Collection Agencies Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, collection agencies in Michigan must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Pay all funds owed to creditors
- Do not engage in any acts of fraud
What Other Insurance Products Can Agents Offer Collection Agencies in Michigan?
Michigan does not require collection agencies to purchase any form of liability insurance as a prerequisite to obtaining a license. 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 Michigan Collection Agency Customers?
Michigan conveniently provides a public database to search for active collection agencies 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 services.
