Kentucky Consumer Loan Bond: A Comprehensive Guide

May 18, 2021

This guide provides information for insurance agents to help lenders obtain Kentucky Consumer  Loan 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: 
  • $100,000 for privately held companies
  • $250,000 for publicly traded companies
• Who Needs it: All individuals and business entities seeking to obtain a Consumer Loan License in Kentucky
• Purpose: To ensure the public will receive compensation for any damages should the  lender fail to comply with licensing law
• Who Regulates Consumer Loans in Kentucky: The Kentucky Department of Financial Institutions

Background

Kentucky statute 286.4-420 requires all consumer loan companies operating in the state to obtain a license with the Department of Financial Institutions. The Kentucky legislature enacted the licensing laws and regulations to ensure that consumer lenders engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, consumer lenders must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Kentucky Consumer Loan Bond?

Kentucky requires consumer lenders 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 lender fails to comply with the licensing regulations set forth in Kentucky statute 286.4. Specifically, the bond protects the public in the event the lender engages in any acts of fraud or fails to pay all required taxes and fees. 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 a Kentucky Consumer Loan Surety Bond?

BondExchange makes obtaining a Kentucky Consumer Loan Bond easy. Simply login to your account and use our keyword search to find the “loan” 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 Kentucky Consumer Loan Bond?

Surety companies will run a credit check on the owners of the consumer loan company to determine eligibility and pricing for the Kentucky Consumer Loan bond. Owner’s 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 Kentucky Consumer Loan Bond Cost?

The Kentucky Consumer Loan surety 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 the $100,000 bond requirement.

$100,000 Consumer Loan 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 Kentucky Define “Consumer Loan Company?”

Kentucky statute 286.4-410 defines a consumer loan company as any business entity that makes loans to a consumer for personal, family, or household use when the amount of the loan is $15,000 or less.

How do Consumer Loan Companies Apply for a License in Kentucky?

Consumer lenders in Kentucky 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 Kentucky Consumer Loan 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 Kentucky Consumer Loan License must have a company net worth (assets – liabilities) of at least the following amount:

• • Privately Held Companies: $50,000 when receivables are $1 million or less; or $100,000 when receivable are more than $1 million
  • Publicly Traded Companies: $250,000

Applicants must submit a financial statement, prepared by a CPA, verifying their net worth when submitting their license application

Step 2 – Purchase a Surety Bond

Consumer lenders must purchase and maintain a surety bond with the following minimum limit:

• • $100,000 for privately held companies
  • $250,000 for publicly traded companies

Step 3 – Hire a Managing Principal

Consumer loan companies must hire an individual, with a minimum of two years of lending experience in a financial institution, who is responsible for managing the day to day operations of the business. Applicants must submit documentation verifying the managing principal’s experience when submitting their application.

Step 4 – Request a NMLS Account

The Kentucky Consumer Loan 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 Kentucky Consumer Loan License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Company financial statements
  • The following company contacts:
    • Primary company
    • Primary consumer complaint
    • Accounting
    • Exam Billing
    • Licensing
    • Consumer complaint (public)
    • Exam Delivery
    • Litigation
    • Consumer Complaint (Regulator)
    • Legal
    • Pre-Exam Contact
  • Company business plan containing the following information:
    • Marketing strategies
    • Products
    • Target markets
    • Fee schedule
    • Operating structure the applicant intends to employ
  • Certificate of Good Standing obtained from the Kentucky Secretary of State
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organizational chart detailing the company’s ownership structure
  • Personal financial statements for individuals with at least a 25% stake in the company

Consumer loan companies must pay the following fees when submitting their license application:

• • $500 licensing fee
  • $500 application fee
  • $15 credit report fee (per person)

How Do Kentucky Consumer Loan Companies Renew Their License?

Consumer lenders can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Kentucky Consumer Loan License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Kentucky Consumer Loan License?

The State of Kentucky does not require consumer lenders to obtain any form of liability insurance as a prerequisite to obtaining a business license. Consumer lenders must purchase and maintain a surety bond with the following minimum limit:

• $100,000 for privately held companies
• $250,000 for publicly traded companies

How Do Kentucky Consumer Loan Companies File Their Bond?

Consumer lenders 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 consumer loan 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 is signed

What Can Kentucky Consumer Loan Companies Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, consumer loan companies in Kentucky must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage in any acts of fraud
• Honor all agreements made with consumers
• Pay all required taxes and fees

What Other Insurance Products Can Agents Offer Consumer Loan Companies in Kentucky?

Kentucky does not require consumer loan companies 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 Kentucky Consumer Loan Company Customers?

The NMLS conveniently provides a public database to search for active consumer loan companies in Kentucky. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.