Colorado Collection Agency Bond: A Comprehensive Guide

March 24, 2021

This guide provides information for insurance agents to help collection agencies obtain Colorado Collection Agency Bonds

At a Glance:

• Average Cost: Between 0.75% to 5% of the bond amount per year
• Bond Amount: Determined on a case by case basis. Minimum of $12,000 and a maximum of $20,000 (more on this topic later)
• Who Needs It: All collection agencies seeking to obtain a license in the State of Colorado
• Purpose: To ensure the public will receive compensation for any damages should the collection agency fail to comply with licensing law
• Who Regulates Collection Agencies in Colorado: The Colorado Department of Law

Background

Colorado Statute 5-16-119 requires all collection agencies operating in the state to obtain a license with the Colorado Department of Law. The Colorado legislature enacted the licensing laws and regulations to ensure that collection agencies engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, collection agencies must purchase and maintain a collection agency surety bond to be eligible for licensure.

What is the Purpose of the Colorado Collection Agency Bond?

Colorado requires collection agencies 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 collection agency fails to comply with the licensing regulations. In short, the bond is a type of insurance that protects the public if the collection agency breaks licensing laws.

How Can an Insurance Agent Obtain a Colorado Collection Agency Surety Bond? 

BondExchange makes obtaining a Colorado 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?

Colorado Statute 5-16-124 states that collection agencies must purchase a $12,000 surety bond, plus an additional $2,000 “for each ten thousand dollars, or part thereof, by which the average monthly sums remitted or owed to all of its clients during the previous year exceed fifteen thousand dollars.” The bond amount may not exceed $20,000.

Is a Credit Check Required for the Colorado Collection Agency Bond?

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

The Colorado Collection Agency surety bond can cost anywhere between 0.75% 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 $12,000 bond requirement.

$12,000 Collection Agency 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 Does Colorado Define “Collection Agency?”

The Colorado Department of Law defines a credit agency as any business entity who performs one or more of the following activities:

• Collects or attempts to collect debt from consumers on behalf of a third party
• Debt/judgment buyers who purchase default debts
• Creditors who collect their own debts under a different name which would lead a reasonable person to believe that a third party collecting the debt

How do Collection Agencies Apply for a License in Colorado?

Collection agencies in Colorado must navigate several steps to secure their business license. Below are the general guidelines, but license applicants should refer to the application form for details on the process.

License Period – The Colorado Collection Agency License expires on July 1 of each year and must be renewed before the expiration date

Step 1 – Establish a Business Location

All Colorado collection agencies must have at least one office location in the state. The office must be staffed by a minimum of one full time employee, be open during normal business hours, and store consumer records. Branch locations are not subject to licensure.

Step 2 – Hire a Collections Manager

Collection agencies must employ at least one collections manager who is responsible for supervising all debt collectors and ensure the company complies with all licensing regulations. Collection managers must have at least two years of experience working in a position of responsibility for an established collection agency.

Step 3 – Purchase a Surety Bond

Collection agencies must purchase and maintain a collection agency surety bond

Step 4 – Establish a Trust Account

All collection agencies must establish a trust account for the benefit of their clients and maintain, at all times, funds equal to the amount of money owed to their clients.

Step 5 – Complete the Application

All Colorado collection agency regulatory license applications should be mailed to the following address:

Colorado Department of Law
Consumer Protection Section, CAR
Ralph L. Carr Colorado Judicial Center
1300 Broadway, 6th Floor
Denver, CO  80203

Collection agencies must complete the application in its entirety, and submit the following items:

• • Personal affidavits for each company owner/officer
  • Financial statements for the previous fiscal year
  • A sample first notice that the agency will send to a consumer
  • A list of all company branch offices
  • A list of all debt collectors employed by the agency
  • A copy of the debt purchaser agreement (debt buyers only)
  • Company formation documents as well as a Certificate of Good Standing issued by the Colorado Secretary of State

License applicants must submit a $500 investigation fee with their application. After the Department of Law has approved the collection agency’s application, the applicant must pay a $1,000 licensing fee.

 How Do Colorado Collection Agencies Renew Their License?

Collection agencies should mail their completed renewal application to the following address:

Colorado Department of Law
Consumer Protection Section, CAR
Ralph L. Carr Colorado Judicial Center
1300 Broadway, 6th Floor
Denver, CO  80203

The Colorado Collection Agency License expires on July 1 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Colorado Collection Agency License?

The State of Colorado does not require collection agencies to obtain any form of liability insurance as a prerequisite to obtaining a business license. Collection agencies must purchase and maintain a collection agency surety bond.

How Do Colorado Collection Agencies File Their Bond?

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

Colorado Department of Law
Consumer Protection Section, CAR
Ralph L. Carr Colorado Judicial Center
1300 Broadway, 6th Floor
Denver, CO  80203

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 of entity/individual(s) buying the bond
• Surety company’s name and address
• Bond amount
• Date the bond goes into effect

What Can Collection Agencies Do to Avoid Claims Against the Colorado Collection Agency Bond?

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

• Pay all debt collected to the appropriate party
• Do not harass or attempt to intimidate any debtors

What Other Insurance Products Can Agents Offer Collection Agencies in Colorado?

Colorado does not require collection agencies 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 Colorado Collection Agency Customers?

Colorado conveniently provides a public database to search for active collection agencies 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