Illinois Payday Loan Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain Illinois Payday Loan Bonds
At a Glance:
- Lowest Cost: $375 per year or $38 per month based on the applicant’s credit
- Bond Amount: $50,000 for payday lenders with 9 or fewer licensed locations and $500,000 for lenders with 10 or more licensed locations
- Who Needs it: All businesses seeking to obtain a Payday Loan License in Illinois
- Purpose: To ensure the public will receive compensation for any damages should the loan company fail to comply with licensing law
- Who Regulates Payday Lenders in Illinois: The Illinois Department of Financial and Professional Regulation
The Illinois Payday Loan Reform Act requires all payday lenders operating in the state to obtain a license with the Department of Financial and Professional Regulation. The Illinois legislature enacted the licensing laws and regulations to ensure that payday lenders engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, payday lenders must purchase and maintain a $50,000 surety bond (per licensed location up to a maximum of $500,000) to be eligible for licensure.
What is the Purpose of the Illinois Payday Loan Bond?
Illinois requires payday 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 loan company fails to comply with the licensing regulations set forth in the Payday Loan Reform Act. Specifically, the bond protects consumers in the event the payday lender were to commit fraud or issue a loan with an APR greater than 36%. In short, the bond is a type of insurance that protects the public if the payday lender breaks licensing laws.
How Can an Insurance Agent Obtain an Illinois Payday Loan Surety Bond?
BondExchange makes obtaining an Illinois Payday Loan Bond easy. Simply login to your account and use our keyword search to find the “payday” 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.
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.
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Is a Credit Check Required for the Illinois Payday Loan Bond?
Surety companies will run a credit check on the owners of the payday lending company to determine eligibility and pricing for the Illinois Payday Loan bond. Owner’s 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 Illinois Payday Loan Bond Cost?
The Illinois Payday Loan surety bond can cost anywhere between 1.5% to 7.5% 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 a $50,000 bond requirement.
$50,000 Payday Loan Bond Cost
|Credit Score||Bond Cost (1 year)||Bond Cost (1 month)|
|650 – 799||$1,000||$100|
|600 – 649||$2,000||$200|
|550 – 599||$3,750||$375|
*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 Illinois Define “Payday Loan?”
The Illinois Payday Loan Reform Act defines a payday loan as any loan with a term lasting 120 days or less and meets one or more of the following criteria:
- Lender receives a check that is held for deposit until a later date
- A lender accepts one or more authorizations to debit a consumer’s bank account
- A lender accepts an interest in a consumer’s wages, including but not limited to a wage deposit
Individuals and business entities who make or issue payday loans must obtain a license and purchase a surety bond.
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 do Payday Lenders Apply for a License in Illinois?
Payday lenders in Illinois 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 Illinois Money Transmitter 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 Illinois Payday Loan License must have a company net worth (assets – liabilities) of at least $30,000. Applicants must submit an audited financial statement, prepared by a CPA, verifying their net worth when submitting their license application.
Step 2 – Purchase a Surety Bond
Applicants for the Illinois Payday Loan License must purchase and maintain a $50,000 surety bond for payday lenders with 9 or fewer licensed locations and $500,000 for lenders with 10 or more licensed locations
Step 3 – Request a NMLS Account
The Illinois Payday Loan 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 4 – Complete the Application
All Illinois Payday Loan License applications can be completed online through the NMLS. Applicants must complete the entire application, and submit the following items:
- Audited financial statements indicating a company net worth of at least $30,000
- The following company contacts:
- Primary company contact
- Primary consumer complaint contact
- Licensing (company’s compliance officer)
- Company business plan detailing the nature, amount, interest rate and term of loans to be made and types of security that will be taken
- Certificate of Good Standing issued by the Illinois Secretary of State
- Photographs showcasing the interior and exterior of the proposed business location
- Service of Process Form
- Authorization request for another of business activities to be conducted at the licensed location
Applicants for the Illinois Payday Loan License must pay a $1,000 application fee and a $15 credit report fee (per person) when submitting their license application
How Do Illinois Payday Lenders Renew Their License?
Payday lenders can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Illinois Money Transmitter License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Illinois Payday Loan License?
The State of Illinois does not require payday lenders to obtain any form of liability insurance as a prerequisite to obtaining a business license. Payday lenders must purchase and maintain a $50,000 surety bond for payday lenders with 9 or fewer licensed locations and $500,000 for lenders with 10 or more licensed locations.
How Do Illinois Payday Lenders File Their Bond?
Payday lenders should mail the completed bond form, including the power of attorney, to the following address:
Illinois Department of Financial and Professional Regulation
320 W Washington St #3
Springfield, IL 62786
The payday loan surety bond requires signatures from both the surety company that issues the bond and a representative from the payday lending 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
- Bond amount
- Date the bond is signed
What Can Illinois Payday Lenders Do to Avoid Claims Against Their Bond?
In order to avoid claims made against their bond, payday lenders in Illinois 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 issue loans with an APR higher than 36%
What Other Insurance Products Can Agents Offer Payday Lenders in Illinois?
Illinois does not require payday lenders to purchase any form of liability insurance as a prerequisite to obtaining a 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 Illinois Payday Lender Customers?
The NMLS conveniently provides a public database to search for active payday lenders in Illinois. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.