North Carolina Collection Agency Bond: A Comprehensive Guide

July 13, 2021

This guide provides information for insurance agents to help their customers obtain North Carolina Collection Agency Bonds

At a Glance:

• Average Cost: Between 0.5% to 5%% of the bond amount per year based on the applicant’s credit
• Bond Amount:
  • $10,000 for domestic collection agencies
  • $10,000 for foreign collection agencies
  • $20,000 for alien collection agencies

Collection agencies may need to increase their bond amount when renewing their permit (more on this later)

• Who Needs it: All collection agencies operating in North Carolina
• Purpose: To ensure the public will receive compensation for any damages should the collection agency fail to comply with permitting law
• Who Regulates Collection Agencies in North Carolina: The North Carolina Department of Insurance

Background

North Carolina statute 58-70-1 requires all collection agencies operating in the state to obtain a permit with the Department of Insurance. The North Carolina legislature enacted the permitting laws and regulations to ensure that collection agencies engage in ethical business practices. In order to provide financial security for the enforcement of the permitting law, collection agencies must purchase and maintain a surety bond prior to conducting business operations.

What is the Purpose of the North Carolina Collection Agency Bond?

North Carolina requires collection agencies to purchase a surety bond as part of the application process to obtain a business permit. 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 North Carolina statutes Chapter 58 – Article 70. Specifically, the bond protects the public in the event the collection agency engages in any acts of fraud or fails to pay all money owed to creditors. In short, the bond is a type of insurance that protects the public if the collection agency withholds funds collected from creditors.

How Can an Insurance Agent Obtain a North Carolina Collection Agency Bond?

BondExchange makes obtaining a North Carolina 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?

North Carolina statute 58-70-20 dictates that the limit on the collection agency bond be as follows:

• $10,000 for domestic collection agencies (located in NC)
• $10,000 for foreign collection agencies (headquartered in the US but outside of NC)
• $20,000 for alien collection agencies (headquartered outside of the US)

When renewing their business permit, collection agencies must increase their bond to an amount equal to the total collections paid directly to the collection agency less commissions earned by the collection agency on those collections for the calendar year ending immediately prior to the date of application, multiplied by one-sixth. The bond amount may not be less than $10,000 and may not exceed $30,000.

Is a Credit Check Required for the North Carolina Collection Agency Bond?

Surety companies will run a credit check on the owners of the collection agency to determine eligibility and pricing for the North Carolina 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 North Carolina Collection Agency Bond Cost?

The North Carolina Collection Agency Bond can cost anywhere between 0.5% 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 $10,000 bond requirement.

$10,000 Collection Agency Bond Cost

How Does North Carolina Define “Collection Agency?”

North Carolina statute 58-70-15 defines a collection agency as any business entity who performs one or more of the following activities:

• Procures a listing of delinquent debtors from any creditor and then sells the listing
• Transfers or sells any system or series of letters or forms for use in the collection of delinquent accounts or claims which by direct assertion or by implication indicate that the claim or account is being asserted or collected by any person, firm, corporation, or association other than the creditor or owner of the claim or demand
• Sets up a collection service for his or its own business and the agency has a name other than that of the business
• Purchases delinquent or charged-off consumer loans or consumer credit accounts, or other delinquent consumer debt for collection purposes

Exemptions to this definition include:

• Banks and trust companies and their subsidiaries
• Businesses who render statements of accounts and provide bookkeeping services for creditors
• Mortgage banking companies
• Savings and loan associations
• Building and loan associations
• Real estate brokers/agents
• Express, telephone and telegraph companies
• Licensed attorneys
• Court appointed officers
• Business who purchase accounts that are not delinquent and collects them in their own name
• Businesses who collect debts in their own name
• Non-profit organizations

How Do Collection Agencies Apply for a Permit in North Carolina?

Collection agencies in North Carolina must navigate several steps to secure a business permit. Below are the general guidelines, but applicants should refer to the permitting statutes for details on the process.

Permit Period – The North Carolina Collection Agency permit expires on June 30 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the North Carolina Collection Agency Permit must have a positive company net worth (assets – liabilities). Applicants must submit a balance sheet verifying their net worth when submitting their permit application.

Step 2 – Purchase a Surety Bond

Collection agencies must purchase and maintain a surety bond with the following limit:

• • $10,000 for domestic collection agencies (located in NC)
  • $10,000 for foreign collection agencies (headquartered in the US but outside of NC)
  • $20,000 for alien collection agencies (headquartered outside of the US)

Step 3 – Complete the Application

All North Carolina Collection Agency Permit applications can be completed online here. Collection agencies must complete the application in its entirety, and submit the following items:

• • Company formation documents
  • Sworn statement by a company owner/officer detailing the collection methods to be used in NC
  • Statement certifying there are no unsatisfied judgments against the applicant
  • List of all telephone numbers to be used by the collection agency
  • Company balance sheet indicating a positive net worth
  • Statement certifying no company owner/office has been convicted of a felony involving debt collection
  • Statement authorizing reimbursement to the NC Department of Insurance for all permit handling expenses associated with the company’s permit (if headquartered outside of NC only)

How Do North Carolina Collection Agencies Renew Their Permit?

Collection agencies can renew their permit electronically here. The North Carolina Collection Agency permit expires on June 30 of each year and must be renewed before the expiration date. When renewing their permit, collection agencies must adjust their bond amount to equal the total collections paid directly to the collection agency less commissions earned by the collection agency on those collections for the calendar year ending immediately prior to the date of application, multiplied by one-sixth. The bond amount may not be less than $10,000 and may not exceed $30,000.

What Are the Insurance Requirements for the North Carolina Collection Agency Permit?

North Carolina does not require collection agencies to obtain any form of liability insurance as a prerequisite to obtaining a business permit. Collection agencies must purchase and maintain a surety bond with the following limit:

• $10,000 for domestic collection agencies (located in NC)
• $10,000 for foreign collection agencies (headquartered in the US but outside of NC)
• $20,000 for alien collection agencies (headquartered outside of the US)

How Do North Carolina Collection Agencies File Their Bond?

Collection agencies can file their bond electronically here. 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, address, and FEIN of entity/individual(s) buying the bond
• Surety company’s name and address
• Date the bond is signed

What Can North Carolina Collection Agencies Do to Avoid Claims Against Their Bond?

In order to avoid claims made against their bond, collection agencies in North Carolina must follow all permit 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 North Carolina?

North Carolina does not require collection agencies to purchase any form of liability insurance as a prerequisite to obtaining a permit. 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 North Carolina Collection Agency Customers?

North Carolina conveniently provides a public database to search for active collection agencies in the state. 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.