Minnesota Debt Management Services Bond: A Comprehensive Guide
June 28, 2021
This guide provides information for insurance agents to help their customers obtain Minnesota Debt Management Services Bonds
At a Glance:
- Average Cost: Between 1.5% to 5% of the bond amount per year based on the applicant’s credit
- Bond Amount: At least $5,000 (more on this later)
- Who Needs it: All debt management services providers operating in Minnesota
- Purpose: To ensure the public will receive compensation for any damages should the debt management services provider fail to comply with licensing law
- Who Regulates Debt Management Services Providers in Minnesota: The Minnesota Department of Commerce
Minnesota statute 332A.04 requires all debt management services providers operating in the state to obtain a license with the Department of Commerce. The Minnesota legislature enacted the licensing laws and regulations to ensure that debt management services providers engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, debt management services providers must purchase and maintain a surety bond to be eligible for licensure.
What is the Purpose of the Minnesota Debt Management Services Bond?
Minnesota requires debt management services providers 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 debt manager fails to comply with the regulations set forth in Minnesota statute 332A.02-19. Specifically, the bond protects the public in the event the debt manager engages in any acts of fraud or fails to honor contractual obligations made with consumers. In short, the bond is a type of insurance that protects the public if the debt manager breaks licensing laws.
How Can an Insurance Agent Obtain a Minnesota Debt Management Services Surety Bond?
BondExchange makes obtaining a Minnesota Debt Management Services Bond easy. Simply login to your account and use our keyword search to find the “debt” 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.
How is the Bond Amount Determined?
Minnesota statute 332A.04 grants the Department of Commerce (DOC) the authority to determine the bond amount on a case by case basis. The bond must be a minimum of $5,000, and the DOC will examine the following characteristics of each license applicant when determining the bond amount:
- Financial responsibility
- General fitness of company officers to successfully run the company
- Volume of business handled
- Geographic location of all offices
Is a Credit Check Required for the Minnesota Debt Management Services Bond?
Surety companies will run a credit check on the owner’s of the debt management company to determine eligibility and pricing for the Minnesota Debt Management Services 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 Minnesota Debt Management Services Bond Cost?
The Minnesota Debt Management Services bond can cost anywhere between 1.5% 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 a $5,000 bond requirement.
$5,000 Debt Management Services Bond Cost
|Credit Score||Bond Cost (1 year)|
|600 – 649||$200|
|450 – 599||$250|
How Does Minnesota Define “Debt Management Services Provider?”
To paraphrase Minnesota statute 332A.02, a debt management services provider is any business entity who assists debtors in managing their debt.
Exemptions to this definition include:
- Attorneys, accountants, escrow agents, broker-dealers in securities
- All lending institutions
- Employees who perform credit services
- Public officers acting in their official capacity
- Any person while performing services incidental to the dissolution, winding up, or liquidation of a business entity
- Government agencies
- Collection agencies
- Representative payees of social security
- Accelerated mortgage payment providers
- Trustees, guardians, and conservators
- Debt settlement services providers
How do Debt Management Services Providers Apply for a License in Minnesota?
Debt management services providers in Minnesota 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 Minnesota Debt Management Services Provider License expires on December 31 of each year and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Debt management services providers must purchase and maintain a surety bond with a minimum limit of $5,000
Step 2 – Request a NMLS Account
The Minnesota Debt Management Services Provider 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
- Company financial statements
- Primary company and consumer complaint contact information
- Bank account information for the account used solely for Minnesota deposits and payments
- Company business plan containing the following information:
- Marketing Strategies
- Target markets
- Fee schedule
- General description of the company’s business model
- Proof of accreditation, unless the applicant was licensed in Minnesota as a debt prorater immediately before August 1, 2007
- Certificate of Good Standing
- Company staffing and internal policies
- The following document samples:
- Standard debt management services agreement
- Notice of debtor’s right to cancel
- Company formation documents
- Management chart showing the company’s hierarchy
- Organizational chart showing the company’s ownership structure
- Verification of experience form for all individuals who complete the MU2 form
Debt managers must pay a $1,000 licensing fee when submitting their application.
How Do Minnesota Debt Management Services Providers Renew Their License?
Debt managers can renew their license online through the NMLS. License holders need to simply login to their account to access their renewal application. The Minnesota Debt Management Services Provider License expires on December 31 of each year and must be renewed before the expiration date.
What Are the Insurance Requirements for the Minnesota Debt Management Services Provider License?
The State of Minnesota does not require debt managers to obtain any form of liability insurance as a prerequisite to obtaining a business license. Debt management services providers must purchase and maintain a surety bond with a minimum limit of $5,000
How Do Minnesota Debt Management Services Providers File Their Bond?
Debt management services providers 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 debt management company. The surety company should include the following information on the bond form:
- Legal name and NMLS number of entity/individual(s) buying the bond
- Surety company’s name
- Bond amount
- Date the bond goes into effect
- Date the bond is signed
What Can Minnesota Debt Management Services Providers Do to Avoid Claims Against Their Bond?
To avoid claims on their bond, debt management services providers in Minnesota 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
- Honor all contractual obligations with consumers
What Other Insurance Products Can Agents Offer Debt Managers in Minnesota?
Minnesota does not require debt managers 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 Minnesota Debt Manager Customers?
The NMLS conveniently provides a public database to search for active debt managers in Minnesota. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.