Michigan Consumer Financial Services Bond: A Comprehensive Guide
June 23, 2021
This guide provides information for insurance agents to help their customers obtain Michigan Consumer Financial Services Bonds
At a Glance:
- Average Cost: Between 1% to 3% of the bond amount per year based on the applicant’s credit
- Bond Amount:
- $500,000 for Class II license holders who conduct money transmission services with 50 or fewer locations/authorized agents
- $1.5 million for Class II license holders who conduct money transmission services with 51 or more locations/authorized agents
- $1.5 million for Class 1 license holders
- Who Needs it: All consumer financial services providers operating in Michigan
- Purpose: To ensure the public will receive compensation for any damages should the financial services provider fail to comply with licensing law
- Who Regulates Consumer Financial Services Providers in Michigan: The Michigan Department of Insurance and Financial Services
Background
Michigan statute 451.414 requires all consumer financial services providers operating in the state to obtain a license with the Department of Insurance and Financial Services. The Michigan legislature enacted the licensing laws and regulations to ensure that financial services providers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, consumer financial services providers must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the Michigan Consumer Financial Services Bond?
Michigan requires consumer financial services providers 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 financial services provider fails to comply with the regulations set forth in the Michigan Consumer Financial Services Act. Specifically, the bond protects the public in the event the financial services provider engages in any acts of fraud or fails to pay funds owed to consumers. In short, the bond is a type of insurance that protects the public if the financial services provider breaks licensing laws.
How Can an Insurance Agent Obtain a Michigan Consumer Financial Services Surety Bond?
BondExchange makes obtaining a Michigan Consumer Financial Services Bond easy. Simply login to your account and use our keyword search to find the “consumer” 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 Michigan Consumer Financial Services Bond?
Surety companies will run a credit check on the owner’s of the financial services company to determine eligibility and pricing for the Michigan Consumer Financial Services 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 Consumer Financial Services Bond Cost?
The Michigan Consumer Financial Services bond can cost anywhere between 1% to 3% 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 $500,000 bond requirement.
$500,000 Consumer Financial Services Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 750+ | $5,000 |
| 700 – 749 | $7,500 |
| 650 – 699 | $10,000 |
| 550 – 549 | $15,000 |
Who is Required to Obtain a License?
Michigan statute 487.2053 allows all individuals and business entities who provide consumer financial services to obtain one all encompassing license instead of multiple individual licenses. The Consumer Financial Services License covers all of the following individual licenses:
Exemptions to this definition include:
- Money transmitters
- Mortgage brokers, lenders and servicers
- Credit card arrangements
- Motor vehicle sales financier
- Regulatory loans
- Secondary mortgage loans
How do Financial Services Providers Apply for a License in Michigan?
Financial services providers in Michigan 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.
License Period – The Michigan Consumer Financial Services License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Determine the License Type
Michgian requires financial services providers to obtain specific licenses corresponding to the nature in which their business operates. Below are the different types of the Michigan Consumer Financial Services License.
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- Class I: Encompasses the following individual licenses:
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- Class II: Encompasses the following individual licenses:
Step 2 – Meet the Net Worth Requirements
Applicants for the Michigan Consumer Financial Services License must have a minimum company net worth (assets – liabilities) of $100,000; $1,000,000 if conducting credit card activity; or $100,000 plus an additional $25,000 for each location or authorized agent up to a maximum of $1,000,000 if conducting money transmission services. Applicants must submit an audited financial statement, prepared by a CPA, verifying their net worth when submitting their license application.
Step 3 – Purchase a Surety Bond
Financial services providers must purchase a surety bond with the following limit:
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- $500,000 for Class II license holders who conduct money transmission services with 50 or fewer locations/authorized agents
- $1.5 million for Class II license holders who conduct money transmission services with 51 or more locations/authorized agents
- $1.5 million for Class 1 license holders
Step 4 – Request a NMLS Account
The Michigan Consumer Financial Services 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 5 – Complete the Application
All Michigan Consumer Financial Services License applications (Class I and Class II) can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
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- Audited financial statements verifying the company’s net worth
- Names and locations of all company authorized agents
- Primary company and consumer complaint contact information
- Business plan containing the following information:
- Marketing strategies
- Products
- Target markets
- Fee schedule
- Operating structure
- Certificate of Good Standing
- Company formation documents
- Management chart showing the company’s hierarchy
- Organizational chart detailing the company’s ownership structure
- Names and business addresses of the three primary licensees, registrants, or exempt institutions that applicant will broker, assign mortgage loans, or service mortgage loans
- Detailed description of the applicant’s servicing business
- Direct ownership verification
- List of all mortgage loan originators employed by the company
- List of all past and present professional licenses issued to the applicant by the State of Michigan
Financial services providers must pay the following fees when submitting their license application:
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- License fee:
- $6,950 for Class I license applicants
- $2,700 for Class II license applicants
- $1,050 application fee
- $100 processing fee
- $0.25 per authorized agent to a maximum yearly fee of $25,000 (the first 100 authorized agents are exempt from this fee)
- License fee:
How Do Michigan Financial Services Providers Renew Their License?
Financial services providers can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Michigan Consumer Financial Services License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Michigan Consumer Financial Services License?
The State of Michigan does not require financial services providers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Financial services providers must purchase a surety bond with the following limit:
- $500,000 for Class II license holders who conduct money transmission services with 50 or fewer locations/authorized agents
- $1.5 million for Class II license holders who conduct money transmission services with 51 or more locations/authorized agents
- $1.5 million for Class 1 license holders
How Do Michigan Consumer Financial Services Providers File Their Bond?
Financial services providers 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 financial services company. The surety company should include the following information on the bond form:
- Legal name and NMLS number of entity/individual(s) buying the bond
- Surety company’s name
- Bond amount
- Date the bond goes into effect
What Can Michigan Financial Services Providers Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, financial services providers 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 consumers
- Do not engage in any acts of fraud
- Pay all required taxes and fees
What Other Insurance Products Can Agents Offer Financial Services Providers in Michigan?
Michigan does not require financial services providers 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 Financial Services Providers Customers?
The NMLS conveniently provides a public database to search for active financial services providers in Michigan. The database can be accessed here. Contact BondExchange for help developing a marketing piece. Agents can also leverage our print-mail relationships for discounted mailing services.
