Texas Debt Management Services Bond: A Comprehensive Guide
This guide provides information for insurance agents to help their customers obtain a Texas Debt Management Services Bond
At a Glance:
- Lowest Cost: 1% of the bond amount per year based on the applicant’s credit
- Bond Amount: Between $25,000 to $100,000 (more on this later)
- Who Needs it: All debt management service providers operating in Texas
- Purpose: To ensure the public will receive compensation for any damages should the debt manager fail to comply with registration law
- Who Regulates Debt Management Service Providers In Texas: The Texas Office of Consumer Credit Commissioner
Background
Texas statute 394.204 requires all debt management service providers operating in the state to register with the Office of Consumer Credit Commissioner. The Texas legislature enacted the registration laws and regulations to ensure that debt managers engage in ethical business practices. To provide financial security for the enforcement of the registration law, debt managers must purchase and maintain a surety bond to be eligible for registration.
What is the Purpose of the Texas Debt Management Services Bond?
Texas requires debt management service providers to purchase a surety bond as part of the application process to obtain a business registration. 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 Texas code Title 5 Chapter 394. Specifically, the bond protects the public in the event the debt manager 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 debt manager breaks registration laws.
How Can an Insurance Agent Obtain a Texas Debt Management Services Bond?
BondExchange makes obtaining a Texas 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? 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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How is the Bond Amount Determined?
Texas statute 394.206 dictates that the limit on the debt management services bond must be “equal to the average daily balance of the provider’s trust account serving Texas consumers over the six-month period preceding the issuance of the bond.” The bond must be a minimum of $25,000, and may not exceed $100,000. Debt managers who do not receive and hold money on behalf of a consumer for disbursement to the consumer’s creditors must purchase a $50,000 bond.
Is a Credit Check Required for the Texas Debt Management Services Bond?
Surety companies will run a credit check on the owners of the debt management services provider to determine eligibility and pricing for the Texas 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 Texas Debt Management Services Bond Cost?
The Texas Debt Management Services Bond can cost anywhere between 1% 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 $25,000 bond requirement.
$25,000 Debt Management Services Bond Cost
| Credit Score | Bond Cost (1 year) | Bond Cost (1 month) |
|---|---|---|
| 800+ | $250 | $25 |
| 680 – 719 | $375 | $38 |
| 650 – 679 | $500 | $50 |
| 600 – 649 | $1,000 | $100 |
| 450 – 599 | $1,250 | $125 |
*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 Texas Define “Debt Management Services Provider”?
Texas statute 394.202 defines a debt management services provider as any business entity who acts as an intermediary between a consumer and their creditor and seeks to obtain debt concessions from a creditor for the benefit of a consumer.
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 Debt Management Services Providers Apply for Registration in Texas?
Debt managers in Texas must navigate several steps to secure their registration. Below are the general guidelines, but applicants should refer to the application form for details on the process.
Registration Period – The Texas Debt Management Services Registration is valid for two years from the date of issuance and must be renewed before the expiration date
Step 1 – Purchase a Surety Bond
Debt managers must purchase and maintain a surety bond (limits outlined above)
Step 2 – Purchase Insurance
Texas requires debt managers to purchase $100,000 worth of insurance providing coverage for professional liability, employee dishonesty, depositor’s forgery, and computer fraud
Step 3 – Complete the Application
All Texas Debt Management Services Registration applications can be completed online here. Debt managers must also pay a registration fee, which can be calculated here.
How Do Texas Debt Management Services Providers Renew Their Registration?
Debt management services providers can renew their registration online here. Applicants need to simply login to their account to access their renewal application. The Texas Debt Management Services Registration is valid for two years from the date of issuance and must be renewed before the expiration date.
What Are the Insurance Requirements for the Texas Debt Management Services Registration?
Texas requires debt managers to purchase $100,000 worth of insurance providing coverage for professional liability, employee dishonesty, depositor’s forgery, and computer fraud. Debt managers must purchase and maintain a surety bond (limits outlined above).
How Do Texas Debt Management Service Providers File Their Bond?
Debt Management Service Providers should submit the completed bond form, including the power of attorney, electronically here. The Texas Debt Management Services Surety Bond requires signatures from both the surety company that issues the bond and a representative from the debt management services provider. The surety company should include the following information on the bond form:
- Legal name 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 Texas Debt Management Services Providers Do to Avoid Claims Against Their Bond?
To avoid claims against their bond, debt management services providers in Texas must follow all registration 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
What Other Insurance Products Can Agents Offer Debt Managers in Texas?
Texas requires debt managers to purchase $100,000 worth of insurance providing coverage for professional liability, employee dishonesty, depositor’s forgery, and computer fraud. 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 Texas Debt Manager Customers?
Texas conveniently provides a public database to search for active debt management services providers 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.