Montana Deferred Deposit Loan Bond: A Comprehensive Guide

July 9, 2021

This guide provides information for insurance agents to help their customers obtain Montana Deferred Deposit Loan Bonds

At a Glance:

• Average Cost: Between 1% to 12.5% of the bond amount per year based on the applicant’s credit
• Bond Amount: $10,000 per location where deferred deposit loan transactions are conducted with Montana consumers
• Who Needs it: All deferred deposit lenders (payday lenders) operating in Montana
• 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 Montana: The Montana Division of Banking and Financial Institutions

Background

Montana statute 31-1-705 requires all payday lenders operating in the state to obtain a license with the Division of Banking and Financial Institutions. The Montana 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 surety bond, with a limit of $10,000 per business location, to be eligible for licensure.

What is the Purpose of the Montana Deferred Deposit Loan Bond?

Montana 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 Montana Deferred Deposit Loan Act. Specifically, the bond protects the public in the event the payday lender engages in any acts of fraud or charges excessive fees. In short, the bond is a type of insurance that protects the public if the debt management company breaks licensing laws.

How Can an Insurance Agent Obtain a Montana Deferred Deposit Loan Bond?

BondExchange makes obtaining a Montana Deferred Deposit Loan 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 Montana Deferred Deposit Loan Bond?

Surety companies will run a credit check on the owners of the payday lending company to determine eligibility and pricing for the Montana Deferred Deposit Loan 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 Montana Deferred Deposit Loan Bond Cost?

The Montana Deferred Deposit Loan Bond can cost anywhere between 1% to 12.5% 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 $10,000 bond requirement.

$10,000 Deferred Deposit Loan Bond Cost

Who is Required to Obtain The Montana Deferred Deposit Loan License?

Montana statute 31-1-703 requires all business entities who provide one or more of the following services to obtain a Deferred Deposit Loan License:

• Accepts a check dated on the date on which the check is written and agrees to hold the check for a period of days prior to deposit or presentment
• Accepts a check dated subsequent to the date on which the check is written and agrees to hold the check for deposit or presentment until the date written on the check
• Accepts written authorization from a consumer to electronically deduct from the consumer’s account on a specific date

How do Payday Lenders Apply For a License in Montana?

Payday lenders in Montana 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 Montana Deferred Deposit Lender License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Payday lenders must purchase and maintain a surety bond with a limit of $10,000 per business location

Step 2 – Request a NMLS Account

The Montana Deferred Deposit Lender 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 3 – Complete the Application

All Montana Deferred Deposit Lender License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Primary company, consumer complaint, and examination contacts
  • Compiled company financial statements
  • Company business plan containing the following information
    • Marketing strategies
    • Products
    • Target markets
    • Fee schedule
    • Operating structure
  • Certificate of Good Standing
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organizational chart detailing the company’s ownership structure
  • Trust Account Authorization
  • Copies of the company’s fee schedules, consumer disclosure forms, origination, and/or loan modification forms

Payday lenders must pay the following fees when submitting their license application:

• • $500 license fee
  • $36.25 background check fee (per person)
  • $15 credit report fee (per person)

How Do Montana Payday Lenders Renew Their License?

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

What are the Insurance Requirements for the Montana Deferred Deposit Loan License?

Montana does not require payday lenders to purchase any form of liability insurance as a prerequisite to obtaining a business license. Payday lenders must purchase and maintain a surety bond with a limit of $10,000 per business location.

How Do Montana Payday Lenders File Their Bond?

Payday 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 lending company. The surety company should include the following information on the bond form:

• Name and NMLS # of entity/individual(s) buying the bond
• Surety company’s name
• Bond amount
• Date the bond is signed

What Can Montana Payday Lenders Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, payday lenders in Montana 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
• Do not charge excessive fees
• Honor all contractual obligations with consumers

What Other Insurance Products Can Agents Offer Payday Lenders in Montana?

Montana does not require payday lenders to purchase any form of liability insurance as a prerequisite to obtaining a business 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 Montana Payday Lender Customers?

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