Michigan Money Transmitter Bond: A Comprehensive Guide

June 24, 2021

This guide provides information for insurance agents to help their customers obtain Michigan Money Transmitter Bonds

At a Glance:

• Average Cost: Between 1.5% to 7.5% of the bond amount per year based on the applicant’s credit
• Bond Amount: $500,000 plus $10,000 per additional office location to a maximum of $1.5 million
• Who Needs it: All money transmitters operating in Michigan
• 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 Michigan: The Michigan Department of Insurance and Financial Services

Background

Michigan statute 487.1011 requires all money transmitters 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 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 surety bond to be eligible for licensure.

What is the Purpose of the Michigan Money Transmitter Bond?

Michigan requires money transmitters 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 money transmitter fails to comply with the regulations set forth in the Michigan Money Transmission Services Act. Specifically, the bond protects the public in the event the money transmitter engages in any acts of fraud or fails to pay all funds owed to consumers. In short, the bond is a type of insurance that protects the public if the money transmitter breaks licensing laws.

How Can an Insurance Agent Obtain a Michigan Money Transmitter Surety Bond?

BondExchange makes obtaining a Michigan Money Transmitter Bond easy. Simply login to your account and use our keyword search to find the “money” 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 Money Transmitter Bond?

Surety companies will run a credit check on the owner’s of the money transmission company to determine eligibility and pricing for the Michigan Money Transmitter 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 Money Transmitter Bond Cost?

The Michigan Money Transmitter bond can cost anywhere between 1.5% to 7.5% 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 $500,000 bond requirement.

$500,000 Money Transmitter Bond Cost

How Does Michigan Define “Money Transmitter?”

Michigan statute 487.1003 defines a money transmitter as any business entity who provides one or more of the following services:

• Sells or issues payment instruments, closed-loop prepaid access, prepaid access devices, or vehicles
• Receives money or monetary value for transmission

How do Money Transmitters Apply for a License in Michigan?

Money transmitters 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 Money Transmitter License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the Michigan Money Transmitter License must have a minimum company net worth (assets – liabilities) of at least $100,000 plus $25,000 for each additional office location to a maximum of $1 million. Applicants must submit financial statements for the previous two years when submitting their license application.

Step 2 – Purchase a Surety Bond

Money transmitters must purchase and maintain a surety bond with the following limit:

• • $500,000 plus $10,000 per additional office location to a maximum of $1.5 million

Step 3 – Request a NMLS Account

The Michigan 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 4 – Complete the Application

All Michigan Money Transmitter License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Company financial statements for the two years leading up to the date the application is submitted
  • Names and locations of all company authorized agents
  • Primary company and consumer complaint contact information
  • Company’s independently reviewed AML/BSA policy
  • Company business plan containing the following information:
    • Marketing strategies
    • Products
    • Target markets
    • Fee schedule
    • Operating structure
    • The scope of business
    • Financial arrangements
    • Relationship and agreements
    • Sources of funding and credit
    • Use of authorized delegates and employees
    • Other information relevant to the money transmission business
  • Certificate of Good Standing
  • Flow of funds structure
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organizational chart showing the company’s ownership structure
  • List of all company permissible investments
  • Direct ownership verification
  • Confirmation of filing of the company’s FinCen 107 form
  • Precautions company will take to protect user data online (if conducting business via the internet)
  • List of all past or present professional licenses issued to the applicant by the State of Michigan

Money transmitters must pay the following fees when submitting their license application:

• • $3,050 license fee plus $50 for each additional location
  • $600 application fee
  • $0.25 annual fee for all company authorized agents to a maximum of $25,000 (the first 100 agents are excluded from this requirement)

How Do Michigan Money Transmitters Renew Their 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 Michigan Money Transmitter License expires on December 31 of each year and must be renewed before the expiration date.

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

The State of Michigan does not require money transmitters to obtain any form of liability insurance as a prerequisite to obtaining a business license. Money transmitters must purchase and maintain a surety bond with the following limit:

• $500,000 plus $10,000 per additional office location to a maximum of $1.5 million

How Do Michigan Money Transmitters File Their Bond?

Money transmitters 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 money transmission 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 Money Transmitters Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, money transmitters 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
• Faithfully account for all consumer funds received

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

Michigan does not require money transmitters 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 Money Transmitter Customers?

The NMLS conveniently provides a public database to search for active money transmitters 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.