Michigan Deferred Presentment Bond: A Comprehensive Guide
June 24, 2021
This guide provides information for insurance agents to help their customers obtain Michigan Deferred Presentment Bonds
At a Glance:
- Average Cost: Between $750 to $3,750 per year based on the applicant’s credit
- Bond Amount: $50,000, if one individual owns a 20% or greater stake in multiple licensed businesses than only one $50,000 surety bond is required for all businesses
- Who Needs it: All payday lenders operating in Michigan
- Purpose: To ensure the public will receive compensation for any damages should the payday lender fail to comply with licensing law
- Who Regulates Payday Lenders in Michigan: The Michigan Department of Insurance and Financial Services
Background
Michigan statute 487.2132 requires all payday lenders 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 payday lenders engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, payday lenders must purchase and maintain a $50,000 surety bond to be eligible for licensure.
What is the Purpose of the Michigan Deferred Presentment Bond?
Michigan requires payday 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 payday lender fails to comply with the regulations set forth in the Michigan Deferred Presentment Service Transaction Act. Specifically, the bond protects the public in the event the payday lender engages in any acts of fraud or fails to honor all consumer contracts. In short, the bond is a type of insurance that protects the public if the payday lender breaks licensing laws.
How Can an Insurance Agent Obtain a Michigan Deferred Presentment Surety Bond?
BondExchange makes obtaining a Michigan Deferred Presentment Bond easy. Simply login to your account and use our keyword search to find the “deferred” 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 Michigan Deferred Presentment Bond?
Surety companies will run a credit check on the owner’s of the payday lending company to determine eligibility and pricing for the Michigan Deferred Presentment 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 Deferred Presentment Bond Cost?
The Michigan Consumer Financial Services bond can cost anywhere between $750 to $3,750 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 $50,000 bond requirement.
$50,000 Deferred Presentment Bond Cost
| Credit Score | Bond Cost (1 year) |
|---|---|
| 800+ | $750 |
| 650 – 799 | $1,000 |
| 600 – 649 | $2,000 |
| 550 – 599 | $3,750 |
How Does Michigan Define “Payday Lender?”
To paraphrase Michigan statute 487.2122, a payday lender is any individual or business entity who issues a cash advance to a consumer in exchange for the consumer’s personal check or authorization to debit the consumer’s deposit account on a designated date.
How do Payday Lenders Apply for a License in Michigan?
Payday lenders 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 Deferred Presentment Service Provider License expires on September 30 of each year and must be renewed before the expiration date
Step 1 – Meet the Net Worth Requirements
Applicants for the Michigan Deferred Presentment Service Provider License must have the following minimum company net worth (assets – liabilities):
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- $50,000 per location for applicant’s with 1-4 office locations
- $250,000 for applicants with 5 or more office locations
Applicants must submit an audited financial statement, prepared by a CPA, verifying their net worth when submitting their license application.
Step 2 – Purchase a Surety Bond
Payday lenders must purchase and maintain a $50,000 surety bond. If one individual owns a 20% or greater stake in multiple licensed businesses than only one $50,000 surety bond is required for all businesses.
Step 3 – Complete the Application
All Michigan regulatory Deferred Presentment Service Provider License applications should be mailed to the following address:
DIFS – Consumer Finance
PO Box 30220
Lansing, MI 48909-7720
Payday lenders must complete the application in its entirety, and submit the following items:
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- Audited company financial statements
- Contact information for the company’s designated representative who will receive all correspondences from the department
- List of all company officers, partners, and owners with at least a 10% ownership interest
- Organizational chart detailing the company’s ownership structure and subsidiary relationships
- Return transcript of the applicant’s most recent federal tax return
Payday lenders must pay the following fees when submitting their license application:
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- $350 application fee plus an additional $100 for each office location
- $450 license fee for each office location
How Do Michigan Payday Lenders Renew Their License?
Payday lenders should mail their completed renewal application to the following address:
DIFS – Consumer Finance
PO Box 30220
Lansing, MI 48909-7720
All renewal fees can be paid electronically here. The Michigan Deferred Presentment Service Provider License expires on September 30 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Michigan Payday Lender License?
The State of Michigan does not require payday lenders to obtain any form of liability insurance as a prerequisite to obtaining a business license. Payday lenders must purchase and maintain a $50,000 surety bond. If one individual owns a 20% or greater stake in multiple licensed businesses than only one $50,000 surety bond is required for all businesses.
How Do Michigan Payday Lenders File Their Bond?
Payday lenders 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 deferred presentment service provider surety bond requires signatures from both the surety company that issues the bond and a representative from the lending 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 address
- Bond amount
- Date the bond is signed and goes into effect
What Can Michigan Payday Lenders Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, payday lenders in Michigan 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
- Faithfully satisfy all consumer obligations
What Other Insurance Products Can Agents Offer Payday Lenders in Michigan?
Michigan does not require payday lenders 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 Payday Lender Customers?
Michigan conveniently provides a public database to search for active payday lenders 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.
