North Dakota Collection Agency Bond: A Comprehensive Guide

July 16, 2021

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

At a Glance:

• Average Cost: Between $100 to $500 per year based on the applicant’s credit
• Bond Amount: $10,000
• Who Needs it: All collection agencies operating in North Dakota
• 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 North Dakota: The North Dakota Department of Financial Institutions

Background

North Dakota statute 13-05-02 requires all collection agencies operating in the state to obtain a license with the Department of Financial Institutions. The North Dakota 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 $10,000 surety bond to be eligible for licensure.

What is the Purpose of the North Dakota Collection Agency Bond?

North Dakota 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 the North Dakota Statute Chapter 13-05. Specifically, the bond protects the public in the event the collection agency engages in any acts of fraud or fails to pay money collected to the appropriate collectors. In short, the bond is a type of insurance that protects the public if the collection agency breaks licensing laws.

How Can an Insurance Agent Obtain a North Dakota Collection Agency Bond?

BondExchange makes obtaining a North Dakota 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.

Is a Credit Check Required for the North Dakota Collection Agency Bond?

Surety companies will run a credit check on the owners of the collection agency to determine eligibility and pricing for the North Dakota 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 North Dakota Collection Agency Bond Cost?

The North Dakota Collection Agency Bond can cost anywhere between $100 to $500 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 $10,000 bond requirement.

$10,000 Collection Agency Bond Cost

How Does North Dakota Define “Collection Agency?”

North Dakota statute 13-05-01.1 defines a collection agency as any business entity who collects debts from a debtor on behalf of a third party or who solicits or accepts assignments of debts for the purpose of collection.

Exemptions to this definition include:

• Licensed attorneys
• Licensed real estate brokers
• Banks
• Trust companies
• Building and loan associations
• Credit unions
• State or federal government agencies
• Abstract companies doing escrow business
• Creditors collecting their own debts
• Mortgage service companies
• Individuals or businesses who take accounts receivable for collateral purposes
• Creditmen employed by an entity other than a collection agency
• Individuals acting under the authority of a court order

How do Collection Agencies Apply For a License in North Dakota?

Collection agencies in North Dakota 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 North Dakota Collection Agency License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Net Worth Requirements

Applicants for the North Dakota Collection Agency License must have a company net worth (assets – liabilities) of at least $25,000. Applicants must submit a financial statement verifying their net worth when submitting their license application.

Step 2 – Purchase a Surety Bond

Collection agencies must purchase and maintain a $10,000 surety bond

Step 3 – Hire a Qualifying Individual

License applicants must employ a qualifying individual who is capable of handling the day to day operations of the collection agency business. It is recommended that the qualifying individual be placed in a managerial role and have a minimum of three years industry experience.

Step 4 – Request a NMLS Account

The North Dakota Collection Agency 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 North Dakota Collection Agency License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:

• • Company financial statements indicating a net worth of at least $25,000
  • The following company contacts:
    • Primary
    • Primary consumer complaint
    • Legal
    • Pre-Exam Contact
    • Exam Delivery/Billing
    • Licensing
  • Bank account information for the company’s letter/line of credit, operating, and/or trust primary accounts
  • Disclosure questions
  • Company’s IT policy containing the following information:
    • Designated Information Security Officer
    • Internal policies, procedures, and controls covering information security, physical security, fraud prevention/investigation
    • Business continuity
    • Risk assessment/managing identified risks
    • Procedures or plan of action in the event of a security breach
    • Relevant and ongoing training of employees
    • Program review/maintenance
  • Company business plan containing the following information:
    • Executive Summary (Overview)
    • Marketing strategies/Target markets
    • Products/Services
    • Management/Organization Structure (provide a high-level overview of your: 1) corporate history; 2) parent & subsidiaries; 3) management team
    • Sources of income generation
  • Certificate of Good Standing
  • Company formation documents
  • Management chart detailing the company’s hierarchy
  • Organization chart detailing the company’s ownership structure
  • List of all company solicitors/debt collectors
  • Personal financial statements of all company owner’s with at least a 25% stake

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

• • $400 licensing fee
  • $400 application fee
  • $36.25 background check fee (per person)
  • $15 credit report fee (per person)

How Do North Dakota Collection Agencies Renew Their License?

Collection agencies can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The North Dakota Collection Agency License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the North Dakota Collection Agency License?

North Dakota does not require collection agencies to purchase any form of liability insurance as a prerequisite to obtaining a business license. Collection agencies must purchase and maintain a $10,000 surety bond.

How Do North Dakota Collection Agencies File Their Bond?

Collection agencies 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 collection agency. The surety company should include the following information on the bond form:

• Name of entity/individual(s) buying the bond
• Surety company’s name and state of incorporation
• Bond amount
• Date the bond goes into effect
• Date the bond is signed

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

To avoid claims on their bond, collection agencies in North Dakota must follow all license regulations in the state, including some of the most important issues below that tend to cause claim

• Do not make any knowingly false claims or statements to a government agency
• Pay all money owed to creditors
• Do not charge unnecessary fees

What Other Insurance Products Can Agents Offer Collection Agencies in North Dakota?

North Dakota does not require collection agencies 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 North Dakota Collection Agency Customers?

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