Tennessee Collection Service Bond: A Comprehensive Guide

August 26, 2021

Tennessee Collection Service Bond

This guide provides information for insurance agents to help their customers obtain Tennessee Collection Service Bonds

At a Glance:

  • Average Cost: Between 0.75% to 5% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Based on the number of employees the collection service business has:
    • $15,000 for 1-4 employees
    • $20,000 for 5-9 employees
    • $25,000 for 10+ employees
  • Who Needs it: All collection service businesses operating in Tennessee
  • Purpose: To ensure the public will receive compensation for any damages should the collection service business violate licensing law
  • Who Regulates Collection Services Businesses In Tennessee: The Tennessee Department of Commerce and Insurance

Background

Tennessee statute 62-20-105 requires all collection service businesses operating in the state to obtain a license with the Department of Commerce and Insurance. The Tennessee legislature enacted the licensing laws and regulations to ensure that collection service businesses engage in ethical business practices. In order to provide financial security for the enforcement of the licensing law, collection service businesses must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Tennessee Collection Service Bond?

Tennessee requires collection service businesses 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 collection service business fails to comply with the regulations set forth in the Tennessee Fair Debt Collection Practices Act. Specifically, the bond protects the public in the event the collector engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the collection service business breaks licensing laws.

Tennessee Collection Service Bond Form

Tennessee Collection Service Bond Form

How Can an Insurance Agent Obtain a Tennessee Collection Service Surety Bond?

BondExchange makes obtaining a Tennessee Collection Service Bond easy. Simply login to your account and use our keyword search to find the “collection” 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 Tennessee Collection Service Bond?

Surety companies will run a credit check on the owners of the collection company to determine eligibility and pricing for the Tennessee Collection Service 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 Tennessee Collection Service Bond Cost?

The Tennessee Collection Service Bond can cost anywhere between 0.75% 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 $15,000 bond requirement.

$15,000 Collection Service Bond Cost

Credit Score Bond Cost (1 year)
700+ $113
650 – 699 $150
625 – 649 $188
600 – 624 $225
550 – 599 $600
500 – 549 $750

How Does Tennessee Define “Collection Service Business?”

Tennessee statute 62-20-102 defines a collection service business as any business entity who engages in one or more of the following activities

  • Collects debts on behalf of a creditor
  • Collects their own debts using a fictitious name
  • Sells forms used for debt collection

How Do Collection Service Businesses Apply for a License in Tennessee

Collection service businesses in Tennessee must navigate several steps to secure their license. Below are the general guidelines, but applicants should refer to the licensing statutes for details on the process.

License Period – The Tennessee Collection Service License expires on December 31 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Collection service businesses must purchase and maintain a surety bond with a limit based off of the number of individuals they employ:

    • $15,000 for 1-4 employees
    • $20,000 for 5-9 employees
    • $25,000 for 10+ employees

Step 2 – Establish a Trust Account

All license applicants must establish a trust account to store consumer funds and submit proof this account exists with their license application

Step 3 – Complete the Application

All Tennessee Collection Service License applications can be completed online here. Collection service businesses must complete the application in its entirety, and submit the following items:

    • Business or personal (if a sole proprietorship) financial statements that have been prepared by a CPA
    • $750 application fee
    • $25 solicitation card fee (per card)

How Do Tennessee Collection Service Businesses Renew Their License?

Collection service businesses can renew their license online here. License holders will need to pay a $350 fee when renewing their license. The Tennessee Collection Service License expires on December 31 of each year and must be renewed before the expiration date.

What Are the Insurance Requirements for the Tennessee Collection Service License?

Tennessee does not require collection service businesses to purchase any form of liability insurance as a prerequisite to obtaining a business license. Collection service businesses must purchase and maintain a surety bond with a limit based off of the number of individuals they employ:

  • $15,000 for 1-4 employees
  • $20,000 for 5-9 employees
  • $25,000 for 10+ employees

How Do Tennessee Collection Service Businesses File Their Bond?

Collection service businesses should submit the completed bond form, including the power of attorney, electronically here. The surety bond requires signatures from both the surety company that issues the bond and a representative from the collection service business. The surety company should include the following information on the bond form:

  • Name and address of entity/individual(s) buying the bond
  • Surety company’s name
  • Bond amount
  • Date the bond is signed
  • Date the bond goes into effect

What Can Tennessee Collection Service Businesses Do to Avoid Claims Against Their Bond?

To avoid claims on their bond, collection service businesses in Tennessee must ensure that they 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 breach any contracts made with consumers
  • Faithfully account for all funds received from consumers

What Other Insurance Products Can Agents Offer Collection Service Businesses in Tennessee?

Tennessee does not require collection service businesses to purchase any form of liability insurance as a prerequisite to obtaining a business license. However, most reputable businesses will seek to obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue other types of 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 Tennessee Collection Service Customers?

Tennessee conveniently provides a public database to search for active collection service businesses in the state. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2021-12-29T09:47:37-05:00