California Prorater Bond: A Comprehensive Guide

March 17, 2021

This guide provides information for insurance agents to help proraters obtain California Prorater Bonds

For information regarding the California Sale of Checks Bond, click here. To learn more about the California Bill Payer Bond, click here.

At a Glance:

• Average Cost: 
  • $25,000 business license bond: Between $375 to $1,875 per year based on the prorater’s credit
  • $10,000 fidelity bond: $100 per year
• Bond Amount: Proraters must purchase both a $25,000 business license bond and a $50,000 fidelity bond
• Who Needs It: All business entities seeking to obtain a prorater license in the State of California
• Purpose: To ensure the public will receive compensation for any damages should the prorater fail to comply with licensing law
• Who Regulates Proraters Payers in California: The California Department of Financial Protection and Innovation

Background

California Statute 12200 requires all proraters operating in the state to obtain a license with the Department of Financial Protection and Innovation. The California legislature enacted the licensing laws and regulations to ensure that proraters engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, proraters must purchase and maintain both a $25,000 business license bond and a $10,000 fidelity bond to be eligible for licensure.

What is the Purpose of the California Prorater Bond?

California requires businesses to purchase the Prorater Bond as part of the application process to obtain a prorater license. The bond ensures that the public will receive compensation for financial harm if the business fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the business breaks licensing laws.

How Can an Insurance Agent Obtain a California Prorater Surety Bond? 

BondExchange makes obtaining a California Prorater Bond easy. Simply login to your account and use our keyword search to find the “prorate” 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 California Prorater Bond?

Surety companies will run a credit check on the owners of the prorating business to determine eligibility and pricing for the California Prorater 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 California Prorater Business License Bond Cost?

The California Prorater Business License 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.

$25,000 Prorater Business License Bond Cost

*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 Much Does the California Prorater Fidelity Bond Cost?

The $10,000 California Probater Fidelity bond costs just $100 per year

How Does California Define “General Prorater”?

The California Department of Financial Protection and Innovation defines general prorater as any business entity that “for compensation, engages in the business of receiving money or something of value from a debtor for the purpose of distributing the money or something of value among creditors in payment or partial payment of the debtor’s obligations.”

How Does California Define “Special Prorater”?

The California Department of Financial Protection and Innovation defines a special prorater as any individual that “pays customers’ bills as part of their management of customers’ affairs, and generally are business agents or managers.”

How Do Proraters Apply for a License in California?

Businesses in California must navigate several steps to secure their prorater license. Below are the general guidelines, but businesses should refer to the application form for details on the process.

Step 1 – Determine the License Type

California requires proraters to obtain specific licenses corresponding to the nature in which their business operates. Below are the different types of the California Prorater License:

• • General Prorater: Receives debt payments and distributes these payments to creditors
  • Special Prorater: Manages a customer’s affairs and are generally a business agent or manager

Step 2 – Meet the Net Worth Requirements

Applicants for the California Prorater License must first amass a net worth (assets – liabilities) of at least $10,000, with liquid assets of at least $5,000

Step 3 – Purchase a Surety Bond

Proraters must purchase and maintain both a $25,000 business license and a $10,000 fidelity surety bond to be eligible for licensure

Step 4 – Form a Business Entity (General Proraters Only)

Applicants for the general prorater license must form a business entity and register with the California Secretary of State prior to submitting their license application

Step 5 – Complete the Application

All California prorater license applications should be mailed to the following address:

Department of Financial Protection and Innovation
Financial Services
320 W. 4th Street, Suite 750
Los Angeles, CA 90013

Proraters must complete the application in its entirety, and submit the following documents:

• • Corporate resolution authorizing the filing of the application
  • Statement of Identity for each company owner
  • Personal financial statements of each company owner
  • Copy of the articles of incorporation/organization and any bylaws/amendments
  • Company financial statement
  • Copy of each document to be used in the prorater’s business
  • Schedule of fees to be charged
  • Statement from every owner, company officer, and managing employee verifying they have read the Check Sellers, Bill Payers and Proraters Law and the Commissioner’s Rules

Proraters must pay a $250 fee when submitting their license application

What Are the Insurance Requirements for the California Prorater License?

The State of California does not require business to obtain any form of liability insurance as a prerequisite to obtaining a prorater license. Proraters must purchase and maintain both a $25,000 business license and a $10,000 fidelity surety bond.

How Do California Proraters File Their Bond?

Proraters should mail the completed bond form, including the power of attorney, to the following address:

Department of Financial Protection and Innovation
Financial Services
320 W. 4th Street, Suite 750
Los Angeles, CA 90013

The prorater surety bond requires signatures from both the surety company that issues the bond and a representative from the prorating organization.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 address
• Bond amount
• Date the bond goes into effect

What Can Businesses Do to Avoid Claims Against the California Prorater Bond?

To avoid claims on the Prorater Bond, businesses must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do engage in any acts of fraud
• Properly allocate all funds received
• Pay all required taxes and fees ontime and in full

What Other Insurance Products Can Agents Offer Proraters in California?

California does not require proraters to obtain any form of liability insurance. 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 California Prorater Customers?

California conveniently provides a public database to search for active proraters 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 service