Washington Consumer Loan Bond: A Comprehensive Guide

September 8, 2021

This guide provides information for insurance agents to help their customers obtain a Washington Consumer Loan Bond

At a Glance:

• Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
• Bond Amount: Based on the annual volume of consumer loans originated

Table 1.1

• Who Needs it: All consumer lenders operating in Washington
• Purpose: To ensure the public will receive compensation for any damages should the consumer lender fail to comply with licensing law
• Who Regulates Consumer Lenders In Washington: The Washington Department of Financial Institutions

Background

Washington statute 31.04.035 requires all consumer lenders operating in the state to obtain a license with the Department of Financial Institutions. The Washington legislature enacted the licensing laws and regulations to ensure that consumer lenders engage in ethical business practices. To provide financial security for the enforcement of the licensing law, consumer lenders must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Washington Consumer Loan Bond?

Washington requires consumer 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 consumer lender fails to comply with the licensing regulations set forth in the Washington Consumer Loan Act. Specifically, the bond protects the public in the event the consumer lender engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the consumer lender breaks licensing laws.

How Can an Insurance Agent Obtain a Washington Consumer Loan Surety Bond?

BondExchange makes obtaining a Washington Consumer Loan Bond easy. Simply login to your account and use our keyword search to find the “consumer” 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 Washington Consumer Loan Bond?

Surety companies will run a credit check on the owners of the lending company to determine eligibility and pricing for the Washington Consumer 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 Washington Consumer Loan Bond Cost?

The Washington Consumer Loan Bond can cost anywhere between 0.75% to 5% of the bond amount per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the approximate bond cost on the $30,000 bond requirement.

$30,000 Consumer Loan Bond Cost

Table 1.2

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Washington Define “Consumer Lender?”

To paraphrase Washington statute 31.04.015, a consumer lender is any business entity who either secured or unsecured loans to Washington residents.

How do Consumer Lenders Apply for a License in Washington?

Consumer Lenders in Washington 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 Washington Consumer Loan Company License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Register with the Secretary of State

Consumer lenders must register their business entity with the Washington Secretary of State. Instructions on how to register can be found here.

Step 2 – Obtain a Business License

Consumer lenders who service Washington consumers must obtain a standard business license prior to submitting their consumer loan company license application

Step 3 – Purchase a Surety Bond

Consumer lenders must purchase and maintain a surety bond (limits outlined in Table 1.1)

Step 4 – Request an NMLS Account

All Washington Consumer Loan Company License applications are 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 Washington Consumer Loan Company License applications can be completed online through the NMLS. Completed applications will include the following items:

• • List of all web addresses the company operates
  • Disclosure questions
  • MLO sponsorship (mortgage brokers and lenders only)
  • Company’s complaint resolution policy
  • Certificate of Authority (LLCs and Corporations only)
  • Company management and organizational charts
  • Copies of all of the company’s warehouse agreements (lenders only)
  • Company financial statements

The following items must be emailed to MortgageLicensing@dfi.wa.gov, all relevant documents can be found here.

• • Affirmation and declaration form
  • Activity declaration form

Consumer lenders must pay a  $1,162.21 fee when submitting their license application.

How Do Washington Consumer Lenders Renew Their License?

Consumer lenders can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Washington Consumer Loan Company License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Washington Consumer Loan Company License?

Washington does not require consumer lenders to obtain any form of liability insurance as a prerequisite to obtaining a business license. Consumer lenders must purchase and maintain a surety bond (limits outlined in Table 1.1).

How Do Washington Consumer Lenders File Their Bond?

Consumer 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:

• Legal name, UBI, and NMLS number of entity/individual(s) buying the bond
• Surety company’s name
• Bond amount
• Date the bond is signed

What Can Washington Consumer Lenders Do to Avoid Claims Against Their Bond?

To avoid claims made against their bond, consumer lenders in Washington 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 breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Consumer Lenders in Washington?

Washington does not require consumer 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 Washington Consumer Lender Customers?

The NMLS conveniently provides a public database to search for active Consumer Lenders in Washington. The database can be accessed here. Contact BondExchange for help developing a marketing piece. Agents can also leverage our print-mail relationships for discounted mailing services.