Money Transmitter Bond: A Comprehensive Guide
What is a Money Transmitter Bond?
Money transmitter bonds are government-required surety bonds that individuals and business entities must purchase to obtain a money transmitter license. Money transmitter bonds protect the public from financial harm resulting from violations of licensing law committed by the money transmitter.
Most states require money transmitters to purchase a surety bond as a prerequisite for licensure and the bond must remain active as long as the money transmitter is in business.
Unlike most insurance products, surety bonds protect a third party (customers of the money transmitter) for acts that are violations of the law. When the surety company suffers a loss due to the money transmitter’s actions, the money transmitter must repay to the surety company any losses and sometimes court costs and other fees.
Who is Considered a “Money Transmitter?”
Most states require money transmitters to obtain a license and surety bond to operate in the state. State definitions vary on who is considered a “money transmitter”, but the general rule of thumb is that individuals and business entities who collect funds and transmit them to a third party must obtain a license. Money transmitters will need to obtain a license and surety bond in every state they seek to conduct business in.
On a federal level, The Financial Crimes Enforcement Network (FinCen) defines a Money Services Business as a business entity who acts in one or more of the following capacities:
- Currency dealer or exchanger
- Check casher
- Issuer of traveler’s checks, money orders or stored value
- Seller or redeemer of traveler’s checks, money orders or stored value
- Money transmitter
- U.S Postal Service
How Can an Insurance Agent Obtain a Money Transmitter Surety Bond?
BondExchange makes obtaining Money Transmitter bonds easy. Simply login to your account and use our keyword search to find the “money” bond in our database. Don’t have a login? Gain access 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.
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Who Regulates Money Transmitters?
State government agencies regulate money transmitters based on license law written by each state’s legislature. Governments enforce the law by instituting licensing requirements like financial statements, net worth thresholds, and a surety bond. Money transmitter bonds ensure the public will be compensated if the money transmitter fails to comply with the law. Money transmitters are also regulated on a federal level by FinCen, which ensures money transmitters do not engage in illegal practices such as money laundering.
How Much Does a Money Transmitter Bond Cost?
Money Transmitter bonds generally cost between 1% to 12.5% of the bond amount per year. Monthly subscription options are also available. Why such a large spread? Insurance companies determine the rate based on a number of factors including your customer’s personal credit and experience.
Money transmitters with the best credit and business experience can expect to pay the lowest rates, while money transmitters with poor credit will pay higher rates. The chart below offers a quick reference for the approximate bond cost on a $150,000 Money Transmitter bond
$150,000 Money Transmitter Bond Cost Sample
|Credit Score||Bond Cost (1 year)||Bond Cost (1 month)|
|680 – 799||$2,250||$225|
|650 – 679||$3,000||$300|
|600 – 649||$6,000||$600|
|550 – 599||$11,250||$113|
|500 – 549||$18,750||$188|
*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.
Do Surety Companies Offer Financing on Money Transmitter Bonds?
Most money transmitter bond premiums can be financed. To be eligible, the bond must have a cancellation provision in the bond form. Premium finance companies usually charge a finance fee and interest rate to provide the financing. BondExchange offers in-house payment plans for bond premiums over $500. Our payment plans are interest free and can be set up instantly online with a customer credit card and a few clicks. We offer this option automatically for bonds that meet the eligibility requirements.
Is a Credit Check Required to Purchase a Money Transmitter Bond?
Yes, surety underwriters will review your customer’s personal credit to determine their eligibility and rate for money transmitter bonds. Most carriers use a “soft check”, so the credit review will not affect the applicant’s credit. Underwriters will consider other aspects of the money transmitter’s application, but credit scores and their underlying data remain the primary underwriting tool for money transmitter bonds.
BondExchange now offers monthly pay-as-you-go subscriptions for surety bonds. Your customers are able to purchase their bonds on a monthly basis and cancel them anytime. Learn more here.
How Does a Money Transmitter Obtain a License?
Most states allow money transmitters to apply for a license electronically through the Nationwide Multistate Licensing System (NMLS). Each state has its own specific licensing requirements, however, most license applications will require the following items:
- Applicant’s name and business address
- Applicant’s social security number
- Applicant’s tax identification number
- A certificate of good standing
- An application fee, a licensing fee (or a renewal fee, respectively)
- A criminal background check
- A money transmitter surety bond
How Does a Money Transmitter File Their Bond?
Surety bond companies will provide the money transmitter with a completed surety bond to be filed with the relevant licensing authority. Most states require the original bond with a raised surety company seal to be filed electronically through the NMLS.
Surety companies should include the following information on most bond forms:
- Legal name and address of entity/individual(s) buying the bond
- Surety company’s name, address and phone number
- Bond amount
- Signatures of the surety representative
- Date the bond is effective and issued
- Corporate seal of the surety company
- Power of Attorney
What Can Money Transmitters Do to Avoid Claims Against a Money Transmitter Bond?
To avoid claims on a Money Transmitter Bond, money transmitters must adhere to all relevant federal and state regulations. Best practices for avoiding claims include the following:
- Do not engage, or allow representatives of the business to engage, in any acts of fraud
- Pay taxes and fees on time
- Do not engage in criminal activity such as money laundering
- Ensure the full payment of all funds to users of your service
Which States Require Money Transmitters to Purchase a Money Transmitter Bond?
49 states and the District of Columbia require money transmitters to purchase a surety bond as a prerequisite to licensure. Montana is the only state that does not require money transmitters to be bonded. To view our state-by-state guides, click the links below.