Massachusetts Debt Collector Bond: A Comprehensive Guide

May 24, 2021

This guide provides information for insurance agents to help their customers obtain Massachusetts Debt Collector Bonds

At a Glance:

• Average Cost: Between $188 to $1,250 per year based on the applicant’s credit
• Bond Amount: $25,000
• Who Needs it: All debt collectors operating in Massachusetts
• Purpose: To ensure the public will receive compensation for any damages should the debt collector fail to comply with licensing law
• Who Regulates Debt Collectors in Massachusetts: The Massachusetts Division of Banks

Background

Massachusetts General Laws c. 93 s. 24 requires all debt collectors operating in the state to obtain a license with the Division of Banks. The Massachusetts legislature enacted the licensing laws and regulations to ensure that debt collectors engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, debt collectors must purchase and maintain a $25,000 surety bond to be eligible for licensure.

What is the Purpose of the Massachusetts Debt Collector Bond?

Massachusetts requires debt collectors 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 debt collector fails to comply with the licensing regulations set forth in the debt collection licensing statutes. Specifically, the bond protects the public in the event the debt collector fails to pay all funds collected to the appropriate creditors. In short, the bond is a type of insurance that protects the public if the debt collector breaks licensing laws.

How Can an Insurance Agent Obtain a Massachusetts Debt Collector Surety Bond?

BondExchange makes obtaining a Massachusetts Debt Collector Bond easy. Simply login to your account and use our keyword search to find the “debt” 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 Massachusetts Debt Collector Bond?

Surety companies will run a credit check on the owner’s of the debt collection company to determine eligibility and pricing for the Massachusetts Debt Collector 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 Massachusetts Debt Collector Bond Cost?

The Massachusetts debt collector surety bond can cost anywhere between $188 to $1,250 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 Debt Collector 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 Massachusetts Define “Debt Collector?”

To paraphrase Massachusetts General Laws c. 93 s. 24, a debt collector is any individual or business entity regularly collects or attempts to collect debt as part of their standard business operations

Exemptions to this definition include:

• Employees of the creditor
• Individuals collecting debt for organizations they have an ownership interest in
• Individuals collecting debt on behalf of a court order
• Non-profit organizations who perform bona fide credit counseling
• Licensed attorneys
• Certain independent contractors

How do Debt Collectors Apply for a License in Massachusetts?

Debt collectors in Massachusetts 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 Massachusetts Debt Collector License is valid for one year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the Massachusetts Debt Collector License must have a positive company net worth (assets – liabilities). Applicants must submit an audited or reviewed financial statement, prepared by a CPA, verifying their net worth when submitting their license application.

Step 2 – Purchase a Surety Bond

Debt collectors must purchase and maintain a $25,000 surety bond

Step 3 – Hire a Qualifying Individual

Applicants for the Massachusetts Debt Collector License must employ a qualified individual who is capable of managing the day to day operations of the debt collection business. Debt collectors must hire a qualified individual for each branch location where the company services Massachusetts consumers.

Step 4 – Request a NMLS Account

The Massachusetts Debt Collector 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 5 – Complete the Application

All Massachusetts Debt Collector License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Audited or reviewed financial statements indicating a positive company net worth
  • Information for the company’s primary trust account(s)
  • Company business plan containing the following information:
    • Description of all services available to clients
    • Type of debt to be collected or serviced (e.g. consumer, educational, credit card, medical, etc.)
    • Potential creditor clients
    • Description of software to be utilized
    • Information on how the applicant will comply with Massachusetts statutes and regulations, FDCPA, and other relevant federal laws
    • Information regarding employee training
  • Certificate of Good Standing
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organizational chart detailing the company’s ownership structure
  • W-9 Form
  • Financial statements for all company owners with an ownership stake of 10% or more (email to nmls@mass.gov)

Debt collectors must pay the following fees when submitting their license application:

• • $1,300 license fee
  • $36.25 background check fee (per person)
  • $15 credit report fee (per person)

How Do Massachusetts Debt Collectors Renew Their License?

Debt collectors can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Massachusetts Debt Collector License is valid for one year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Massachusetts Debt Collector License?

The State of Massachusetts does not require debt collectors to obtain any form of liability insurance as a prerequisite to obtaining a business license. Debt collectors must purchase and maintain a $25,000 surety bond.

How Do Massachusetts Debt Collectors File Their Bond?

Debt collectors 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 debt collection 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 and NAIC number

What Can Massachusetts Debt Collectors Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, debt collectors in Massachusetts must ensure to pay all funds collected to the appropriate creditors in a timely manner.

What Other Insurance Products Can Agents Offer Debt Collectors in Massachusetts?

Massachusetts does not require debt collectors 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 Massachusetts Debt Collector Customers?

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