Michigan Debt Management Bond: A Comprehensive Guide
June 22, 2021
This guide provides information for insurance agents to help their customers obtain Michigan Debt Management Bonds
At a Glance:
- Average Cost: Between 1.5% to 5% of the bond amount per year based on the applicant’s credit
- Bond Amount: Between $25,000 to $100,000 (more on this later)
- Who Needs it: All debt managers operating in Michigan
- Purpose: To ensure the public will receive compensation for any damages should the debt manager fail to comply with licensing law
- Who Regulates Debt Managers in Michigan: The Michigan Department of Insurance and Financial Services
Background
Michigan statute 451.414 requires all debt management companies operating in the state to obtain a license with the Department of Insurance and Financial Services. The Michigan legislature enacted the licensing laws and regulations to ensure that debt managers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, debt management companies must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the Michigan Debt Management Bond?
Michigan requires debt management companies 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 manager fails to comply with the regulations set forth in the Michigan Debt Management Act. Specifically, the bond protects the public in the event the debt manager fails to properly account for all funds collected. In short, the bond is a type of insurance that protects the public if the debt manager breaks licensing laws.
How Can an Insurance Agent Obtain a Michigan Debt Management Surety Bond?
BondExchange makes obtaining a Michigan Debt Management 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.
How is the Bond Amount Determined?
Michigan statute 451.414 dictates that the limit on the Michigan Debt Management Bond must equal the total amount of Michigan clients’ funds in the debt manager’s trust account at the time of application for license or renewal. The bond limit may not be less than $25,000 and may not exceed $100,000.
Is a Credit Check Required for the Michigan Debt Management Bond?
Surety companies will run a credit check on the owner’s of the debt management company to determine eligibility and pricing for the Michigan Debt Management 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 Michigan Debt Management Bond Cost?
The Michigan Debt Management bond can cost anywhere between 1.5% 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 $25,000 bond requirement.
$25,000 Collection Agency Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 800+ | $375 |
| 650 – 799 | $500 |
| 600 – 649 | $1,000 |
| 450 – 599 | $2,500 |
How Does Michigan Define “Debt Manager?”
Michigan statute 451.412 defines a debt manager as any business entity that plans and manages the financial affairs of a debtor and pays creditors on behalf of the debtor.
Exemptions to this definition include:
- Licensed attorneys
- Certified public accountants
- Financial institutions
- Title insurers and abstract companies performing escrow business
- Employees of debt managers
- Judicial officers acting under court order
How do Debt Managers Apply for a License in Michigan?
Debt managers in Michigan must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the application form for details on the process.
License Period – The Michigan Debt Management License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Debt managers must purchase and maintain a surety bond (limits outlined above)
Step 2 – Complete the Application
All Michigan regulatory debt management license applications should be mailed to the following address:
DIFS -Consumer Finance
PO Box 30220
Lansing MI 48909-7720
Debt managers must complete the application in its entirety, and submit the following items:
-
- Company formation documents
- Company credit report
- Budget analysis
- Debt management contract
- Creditor agreement forms
- Fee schedule
- Certificate of Authority
Debt managers must pay a $100 license fee (per office location) when submitting their application.
How Do Michigan Debt Managers Renew Their License?
Debt Managers will receive their renewal packets approximately 45 days before their licenses expire. Debt managers can email their completed renewal applications to DIFS-CFRenewals@michigan.gov. Renewal fees must be paid electronically here. The Michigan Debt Management License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Michigan Debt Management License?
The State of Michigan does not require debt managers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Debt managers must purchase and maintain a surety bond (limits outlined above).
How Do Michigan Debt Managers File Their Bond?
Debt managers should mail the completed bond form, including the power of attorney, to the following address:
DIFS -Consumer Finance
PO Box 30220
Lansing MI 48909-7720
The debt management surety bond requires signatures from both the surety company that issues the bond and a representative from the debt management company. 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 state of incorporation
- Bond amount
- Date the bond is signed and goes into effect
What Can Michigan Debt Managers Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, debt managers in Michigan must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:
- Faithfully account for all funds received from consumers
- Do not engage in any acts of fraud
What Other Insurance Products Can Agents Offer Debt Managers in Michigan?
Michigan does not require debt managers 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 Michigan Debt Manager Customers?
Michigan conveniently provides a public database to search for debt managers 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.
