Minnesota Collection Agency Bond: A Comprehensive Guide

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Minnesota Collection Agency Bond: A Comprehensive Guide

June 28, 2021

Minnesota Collection Agency Bond

This guide provides information for insurance agents to help their customers obtain Minnesota Collection Agency Bonds

At a Glance:

  • Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Between $50,000 to $100,000 (more on this later)
  • Who Needs it: All collection agencies operating in Minnesota
  • 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 Minnesota: The Minnesota Department of Commerce

Background

Minnesota statute 332.33 requires all collection agencies operating in the state to obtain a license with the Department of Commerce. The Minnesota 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 surety bond to be eligible for licensure.

What is the Purpose of the Minnesota Collection Agency Bond?

Minnesota 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 regulations set forth in Minnesota statutes 332.31-51. Specifically, the bond protects the public in the event the collection agency engages in any acts of fraud or fails to pay funds collected to creditors. In short, the bond is a type of insurance that protects the public if the collection agency breaks licensing laws.

Minnesota Collection Agency Bond Form
Minnesota Collection Agency Bond Form

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

BondExchange makes obtaining a Minnesota 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?

Minnesota statute 332.34 dictates that the limit on the collection agency bond be no less than $50,000 and no more than $100,000. The base limit on the bond is $50,000, and collection agencies must add an additional $5,000 for every $100,000 received from Minnesota debtors in the previous calendar year, less commissions earned by the collection agency on those collections during the previous calendar year.

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

Surety companies will run a credit check on the owner’s of the collection agency to determine eligibility and pricing for the Minnesota 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 Minnesota Collection Agency Bond Cost?

The Minnesota Collection Agency 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 $50,000 bond requirement.

$50,000 Collection Agency Bond Cost

Credit Score Bond Cost (1 year)
700+ $375
650 – 699 $500
625 – 649 $625
600 – 624 $940
550 – 599 $2,000
500 – 549 $5,000

How Does Minnesota Define “Collection Agency?”

Minnesota statute 332.31 defines a collection agency as any business entity who collects debts on behalf of a third party or who provides creditors with collection forms

How do Collection Agencies Apply for a License in Minnesota?

Collection agencies in Minnesota 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 Minnesota Collection Agency License expires on June 30 each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Collection agencies must purchase and maintain a surety bond (limits outlined above)

Step 2 – Complete the Application

All regulatory Minnesota Collection Agency License applications should be completed electronically through the Minnesota Pulse Portal. Collection agencies must complete the application in its entirety, and submit the following items.

    • Company formation documents
    • Names and addresses of all company owners, officers and managers

Collection agencies must pay the following fees when submitting their license application:

    • $1,000 license fee
    • $500 license fee per additional office location
    • $9.95 application / credit card processing fee

Step 3 – Register all Collector Employees

All collection agency employees who perform collection duties must register with the Department of Commerce. Collection agencies can register their employees electronically through the Minnesota Pulse Portal.

How Do Minnesota Collection Agencies Renew Their License?

Collection agencies can renew their license electronically through the Minnesota Pulse Portal. The Minnesota Collection Agency License expires on June 30 each year and must be renewed before the expiration date.

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

The State of Minnesota 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 surety bond (limits outlined above).

How Do Minnesota Collection Agencies File Their Bond?

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

Minnesota Department of Commerce
85 7th Place E #280
St. Paul, MN 55101

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

What Can Minnesota Collection Agencies Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, collection agencies in Minnesota 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
  • Pay all funds owed to creditors

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

Minnesota does not require collection agencies 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 Minnesota Collection Agency Customers?

Minnesota 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 services.

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Minnesota Collection Agency Bond: A Comprehensive Guide