Alaska Deferred Deposit Advance Bond: A Comprehensive Guide
February 23, 2021
This guide provides information for insurance agents to help Payday Lenders obtain Alaska Deferred Deposit Advance Bonds
At a Glance:
- Average Cost: Between $375 to $1,875 per year based on the lender’s credit
- Bond Amount: $25,000 for a single location and $50,000 for multiple locations
- Who Needs It: All payday lenders seeking to obtain a Deferred Deposit Advance License in the State of Alaska
- Purpose: To ensure the public will receive compensation for any damages should the payday lender fail to comply with licensing law
- Who Regulates Payday Lenders in Alaska: The Alaska Division of Banking and Securities
Background
Alaska Statute 06.50 requires payday lenders operating in the state to obtain a license with the Division of Banking and Securities. The Alaska legislature enacted the licensing laws and regulations to ensure that payday lenders engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, lenders must purchase and maintain a $25,000 deferred deposit advance surety bond for a single location and a $50,000 bond for multiple locations to be eligible for licensure.
What is the Purpose of the Alaska Deferred Deposit Advance Bond?
Alaska requires payday lenders to purchase the Deferred Deposit Advance Bond as part of the application process to obtain a deferred deposit advance license. The bond ensures that the public will receive compensation for financial harm if the lender fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the lender breaks licensing laws.
How Can an Insurance Agent Obtain an Alaska Deferred Deposit Advance Surety Bond?
BondExchange makes obtaining an Alaska Deferred Deposit Advance Surety Bond easy. Simply login to your account and use our keyword search to find the “deposit” 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 Alaska Deferred Deposit Advance Bond?
Surety companies will run a credit check on the owners of the lending company to determine eligibility and pricing for the Alaska Deferred Deposit Advance bond. Lenders with excellent credit and work experience can expect to receive the best rates. Lenders 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 lender’s credit.
How Much Does the Alaska Deferred Deposit Advance Bond Cost?
The $25,000 Alaska Deferred Deposit Advance surety bond can cost anywhere between $375 to $1,875 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 $25,000 bond requirement.
| Credit Score | Bond Cost (1 year) |
|---|---|
| 800+ | $375 |
| 650 – 799 | $500 |
| 600 – 649 | $1,000 |
| 550 – 599 | $1,875 |
*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 Does Alaska Define “Deferred Deposit Advance”?
Alaska Statute 06.50.900 defines deferred deposit advance as “a transaction in which a person (A) accepts a dated check from a person seeking an advance; (B) agrees to hold the check for a specified period of time before depositing or otherwise negotiating the check; and (C) pays to the advance recipient, credits to the account of the advance recipient, or pays to another person on behalf of the advance recipient the amount of the check less the charges.”
How Do Payday Lenders Apply for a License in Alaska?
Payday lenders in Alaska must navigate several steps to secure their deferred deposit advance license. Below are the general guidelines, but lenders should refer to the Application Form for details on the process.
License Period – The Alaska Deferred Deposit Advance License is valid for two years from the date of issuance and must be renewed before the expiration date
Step 1 – Meet the Net Worth Requirements
Applicants for the Alaska Deferred Deposit Advance License must first amass a company net worth (assets – liabilities) of at least $25,000. Lenders must submit financial statements verifying their net worth when submitting their license application.
Step 2 – Obtain a Business License
All businesses operating in the State of Alaska must obtain a business license with the Alaska Department of Commerce, Community, and Economic Development. Lenders can obtain a business license here.
Step 3 – Request a NMLS Account
The Alaska Deferred Deposit Advance License application is submitted electronically through the Nationwide Multistate Licensing System (NMLS). To submit a license application, lender’s must first request to obtain an NMLS account.
Step 4 – Purchase a Surety Bond
Lenders must purchase and maintain a $25,000 surety bond for a single location and a $50,000 surety bond for multiple locations to be eligible for licensure
Step 5 – Complete the Application
All deferred deposit advance regulatory license applications can be completed online through the NMLS. Lenders must complete the application, including the following steps:
5.a Financial Statement – Lenders must submit an audited financial statement that has been prepared by a certified public accountant
5.b Business Plan – License applicants are required to submit a business plan indicating the following information:
-
- Marketing strategies
- Products
- Target markets
- Fee schedule
- Operating structure the applicant intends to employ
5.c Fees – Lenders must pay a $1,500 licensing fee when submitting their license application
How Does an Alaska Payday Lender Renew Their License?
Lenders can renew their license online through the NMLS. Lenders need to simply login to their account to access their renewal application. The Alaska Deferred Deposit Advance License is valid for two years from the date of issuance and must be renewed before the expiration date.
What Are the Insurance Requirements for the Alaska Deferred Deposit Advance License?
The Alaska Division of Banking & Securities does not require payday lenders to obtain any form of liability insurance. Lenders must purchase and maintain a $25,000 surety bond.
How Do Alaska Payday Lenders File Their Bond?
Lenders should submit the completed bond form, including the power of attorney, electronically through the NMLS. The Deferred Deposit Advance surety bond requires signatures from both the surety company that issues the bond and the payday lender. The surety company should include the following information on the bond form:
- Legal name of entity/individual(s) buying the bond
- Surety company’s name and state of residence
- Date the bond is signed and goes into effect
If you have any questions regarding the filing process, read our article regarding the NMLS system here
What Can Payday Lenders Do to Avoid Claims Against the Alaska Deferred Deposit Advance Bond?
To avoid claims on the Deferred Deposit Advance Bond, lenders must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Pay all required taxes and fees
- Do not engage in any acts of fraud
What Other Insurance Products Can Agents Offer Payday Lenders in Alaska?
Alaska does not require payday lenders to obtain any form of liability insurance. However, most reputable lenders will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability or workers’ compensation 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 Alaska Payday Lender Customers?
Alaska conveniently provides a public database to search for active payday lenders 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.
What other Financial Service Bonds are Required in Alaska?
Alaska requires businesses to purchase specific bonds correlating with their license type. Below are all the different financial services bonds required by the State of Alaska:
- Money Transmitter: $25,000 bond limit plus an additional $5,000 for each branch location. The bond amount may not exceed $150,000
- Collection Agency: $5,000 bond limit
- Mortgage Broker/Lender: $75,000 bond limit
