What is a payday lender bond?
A payday loan bond is a type of surety bond that is required by various regulatory authorities across the different states. If you are looking to become a payday lender, you will need to fulfill this requirement if you are going to get a license to practice. The payday loan bond is also a guarantee to the borrower that if the lender does decide to profit unfairly, then any suit they bring against them will give them some respite. A payday loan bond is meant to keep the payday lender honest.
What You Need to Know About Payday Lender Bonds?
The payday loan bond isn’t as widespread as other types of bonds required by financial officers. Loan officers, mortgage lenders among others all must have bonds as part of their licensing to operate. Various states have instituted requirements for payday lenders to obtain payday loan bonds if they want to operate in that financial sector. This requirement comes on the backdrop of various efforts to completely phase out payday loans, and other groups attempting to protect their most vulnerable members.
Religious groups have been known to fight heavily against payday loans. This is because many payday lenders have been predatory in the past. As a result, people have ended up paying way more than the agreed-upon amount, and others having to fight massive losses due to the lenders unfair practices.
Despite this, the Payday Loan sector is growing remarkably fast. This makes it a worthwhile venture to investigate. Despite that you should think carefully, seeing as how would-be borrowers have become savvier and tend to avoid lenders who have a sketchy history, and those that do not have a payday loan surety.
A Guide to Payday Loan Bonds?
Definition of Payday Loan Bond: A Payday Loan Bond is a type of surety bond that ensures that any payday lending company will abide by all laws, rules and regulations as set forth in the state in which they operate. The bond shields individuals that are harmed by unlawful payday lending practices.
As mentioned earlier, the requirement for payday lenders to obtain a bond is not as widespread as it is with other kinds of financial instruments and services such as mortgages or loans. Therefore, not all states require payday lenders to get one. In fact, out of the 50 states, only seven require one.
This being said, these states all have different means and requirements before one can obtain payday bonds. The costs differ across the states, with some needing a one-time bond while others will require various bonds for the different locations you would want to operate in.
Payday Loan Bond Requirements – Some States
The State of California will require you to pay a $300 fee, $100 for investigations, and $200 as the application fee. A background check, credit check, criminal history check among others will be conducted before proceeding to the next step.
You will then be required to post $25,000 as a surety bond. These bonds, however, are subject to underwriting. The review conducted above will determine exactly how much you will pay.
The State of Colorado requires that a surety bond be paid upon review of the lender’s annual loan volume in the previous year. The bond is also subject to underwriting. The amount to be paid will be determined by the credit check.
The State of Illinois will require you to pay a bond of no less than $50,000. This amount can rise depending on your credit history. The cap, however, is placed at $500,000. These bonds expire on the 31st of December every year and can be prorated depending on the day that you purchased it.
The State of Maryland will require the lender to pay $12,000 for the initial location of the business, as well as an additional $12,000 for every location you expand to. This is subject to credit rating, with some having paid as little as $100.
The State of Missouri will audit applicants of the credit lender’s license. They will then require the applicants to post a bond of $100,000. With underwriting and good credit, the applicant can pay just 1% of the cost.
The State of Nevada requires a bond amount of $50,000 and an additional $5,000 for every new location. The underwriting to be done will determine the exact amount to be paid.
The State of Washington requires the applicant to verify with the authorities prior to starting the business. This is because their costs vary.