Alabama Consumer Credit Bond: A Comprehensive Guide

July 27, 2022

Alabama Consumer Credit Bond

This guide provides information for insurance agents to help their customers obtain an Alabama Consumer Credit Bond

At a Glance:

  • Average Cost: Between 0.5% to 5% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Determined by the dollar volume of loans closed in the previous calendar year:

Loan Volume Required Bond Limit
$0 to $25 million $25,000
Over $25 million to $100 million $50,000
Over $100 million $75,000

  • Who Needs It: All companies that extend credit or take assignments of consumer credit secured by real estate located in Alabama
  • Purpose: To ensure the public will receive compensation for any damages should the company fail to comply with licensing law
  • Who Regulates Consumer Credit Companies in Alabama: The Alabama State Banking Department

Background

The Alabama Consumer Credit Act requires consumer credit companies operating in the state to obtain a license with the State Banking Department. The Alabama legislature enacted the licensing laws and regulations to ensure that consumer credit companies engage in ethical business practices. To provide financial security for the enforcement of the licensing law, consumer credit companies must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Alabama Consumer Credit Bond?

Alabama requires consumer credit companies 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 company fails to comply with the regulations outlined in the Alabama Consumer Credit Act. Specifically, the bond protects the public if the company commits fraud or breaches consumer contracts. In short, the bond is a type of insurance that protects the public if the consumer credit company violates the terms of its license.

Alabama Consumer Credit Bond Form

Alabama Consumer Credit Bond Form

How Can an Insurance Agent Obtain an Alabama Consumer Credit Surety Bond?

BondExchange makes obtaining an Alabama Consumer Credit 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 Alabama Consumer Credit Bond?

Surety companies will run a credit check on the owners of the consumer credit company to determine eligibility and pricing for the Alabama Consumer Credit 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 Alabama Consumer Credit Bond Cost?

The Alabama Consumer Credit surety bond can cost anywhere between 0.5% 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 the $25,000 bond requirement.

$25,000 Consumer Credit Bond Cost

Credit Score Bond Cost (1 year)
700+ $125
650 – 699 $250
625 – 649 $312.50
600 – 624 $470
550 – 599 $1,000
500 – 549 $1,250

*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.

Who is Required to Purchase the Bond?

Alabama requires consumer credit companies to purchase a surety bond as a prerequisite to obtaining a business license. To paraphrase the Alabama Consumer Credit Act, a consumer credit company is a business that provides one or more of the following services:

  • Makes consumer loans
  • Makes consumer loans that have been originated by a licensed mortgage loan originator
  • Takes assignments of consumer credit contracts

Exemptions to this definition include:

  • Chartered banks
  • Trust companies
  • Savings or building and loan associations
  • Savings banks and other thrift institutions
  • Bank and thrift holding companies
  • Credit unions
  • Federally constituted agencies

How Do Consumer Credit Companies Apply for a License in Alabama?

Consumer credit companies in Alabama must navigate several steps to secure their licenses. Below are the general guidelines, but applicants should refer to the application checklist for details on the process.

License Period – All Alabama Consumer Credit Licenses expire annually and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Consumer credit companies must purchase and maintain a surety bond (limits outlined above).

Step 2 – Request an NMLS Account

The Alabama Consumer Credit 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 consumer credit license applications should be completed online through the NMLS. Applicants must complete the application in its entirety, and submit the following items:

    • Company financial statements prepared by a CPA
    • Company formation documents
    • Certificate of existence (out-of-state businesses only)
    • Resumes of all company owners and executive officers for the past five years
    • Copies of driver’s licenses for all company owners and executive officers
    • Background check authorization
    • Zoning verification

Consumer credit companies must pay $700 in licensing fees when submitting their applications.

How Do Alabama Consumer Credit Companies Renew Their Licenses?

Consumer credit companies can renew their licenses online through the NMLS. License holders need to simply login to their account to access their renewal application. All Alabama Consumer Credit Licenses expire annually and must be renewed before the expiration date.

What Are the Insurance Requirements for the Alabama Consumer Credit License?

Alabama does not require consumer credit companies to obtain any form of liability insurance as a prerequisite to obtaining a state license. Consumer credit companies must purchase and maintain a surety bond (limits outlined above).

How Do Alabama Consumer Credit Companies File Their Bonds?

Consumer credit companies should submit the completed bond forms, including the power of attorney, electronically through the NMLS. The Consumer Credit surety bond requires signatures from both the surety company that issues the bond and a representative of the company. The surety company should include the following information on the bond form:

  • Legal name and address of entity/individual(s) buying the bond
  • Surety company’s name and address
  • Bond amount
  • Bond term
  • Date the bond is signed

What Can Companies Do to Avoid Claims Against the Alabama Consumer Credit Bond?

To avoid claims on the Consumer Credit Bond, companies must follow all license regulations in the state, including some of the most important issues below that tend to cause claims:

  • Do not engage, or allow representatives of the business to engage, in any acts of fraud
  • Do not breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Consumer Credit Companies in Alabama?

Alabama does not require consumer credit companies to obtain any form of liability insurance. However, most reputable companies 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 Alabama Consumer Credit Company Customers?

The NMLS conveniently provides a public database to search for active consumer credit companies in Alabama. 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.

2022-07-27T15:35:26-04:00