Texas Money Transmitter Bond: A Comprehensive Guide

September 15, 2021

Texas Money Transmitter Bond

This guide provides information for insurance agents to help their customers obtain a Texas Money Transmitter Bond

At a Glance:

  • Average Cost: Between 1% to 12.5% of the bond amount per year based on the applicant’s credit
  • Bond Amount: Between $300,000 to $2 million (more on this later)
  • Who Needs it: All money transmitters operating in Texas
  • Purpose: To ensure the public will receive compensation for any damages should the money transmitter fail to comply with licensing law
  • Who Regulates Money Transmitters In Texas: The Texas Department of Banking

Background

Texas statute 151.502 requires all money transmitters operating in the state to obtain a license with the Division of Banking. The Texas legislature enacted the licensing laws and regulations to ensure that money transmitters engage in ethical business practices. To provide financial security for the enforcement of the licensing law, money transmitters must purchase and maintain a surety bond to be eligible for licensure.

What is the Purpose of the Texas Money Transmitter Bond?

Texas requires money transmitters 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 money transmitter fails to comply with the regulations set forth in Texas code Chapter 151. Specifically, the bond protects the public in the event the money transmitter engages in any acts of fraud or fails to transmit funds owed to consumers. In short, the bond is a type of insurance that protects the public if the money transmitter breaks licensing laws.

Texas Money Transmitter Bond Form

Texas Money Transmitter Bond Form

How Can an Insurance Agent Obtain a Texas Money Transmitter Bond?

BondExchange makes obtaining a Texas Money Transmitter Bond easy. Simply login to your account and use our keyword search to find the “money” 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?

Texas statute 151.308 dictates that the bond amount must equal 1% of the total yearly volume of funds transferred in the state of Texas (first time license applicants must estimate this amount). The bond must be a minimum of $300,000 and may not exceed $2 million.

Is a Credit Check Required for the Texas Money Transmitter Bond?

Surety companies will run a credit check on the owners of the money transmission company to determine eligibility and pricing for the Texas Money Transmitter 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 Money Transmitter Bond Cost?

The Texas Money Transmitter Surety Bond can cost anywhere between 1% to 12.5% 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 $300,000 bond requirement.

$300,000 Money Transmitter Bond Cost

Credit Score Bond Cost (1 year)
720+ $3,000
680 – 719 $4,500
650 – 679 $6,000
600 – 649 $12,000
550 – 599 $22,500
500 – 549 $37,500

*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 “Money Transmitter”?

To paraphrase Texas statute 151.002, a money transmitter is any business entity who engages in one or more of the following activities:

  • Sells or issues payment instruments
  • Receives money for transmission
  • Provides third-party bill paying services
  • Transports currency
  • Offers accelerated payment programs
  • Exchanges currency

How Do Money Transmitters Apply for a License in Texas?

Money transmitters in Texas 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 Texas 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 Texas Money Transmitter License must maintain a company net worth (assets – liabilities) of at least:

    • $100,000 if the applicant conducts transmissions at 4 or fewer locations
    • $500,000 if the applicant conducts transmissions at 5 or more locations or via the internet

Money transmitters must submit audited financial statements, prepared by a CPA, verifying their net worth when submitting their license application.

Step 2 – Purchase a Surety Bond

Money transmitters must purchase and maintain a surety bond (limits outlined above)

Step 3 – Request a NMLS Account

The Texas Money Transmitter 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 Texas Money Transmitter License applications can be completed online through the NMLS. money transmitters must complete the entire application, and submit the following items:

    • Audited company financial statements
    • Interim financial statements (if applicable)
    • Financial statements for all entities owning 50% or more of the applicant
    • Primary company and consumer complaint contact information
    • Company’s FinCEN confirmation number and filing date
    • Bank account information for all clearing accounts the applicant uses
    • Disclosure questions
    • Money services business signature form
    • List of all financial services activities previously conducted in Texas
    • The following supplemental forms:
    • Company’s independently reviewed AML/BSA policy
    • Detailed company business plan
    • Copies of all agreements used with consumers
    • Certificate of Good Standing
    • IT questionnaire
    • Copies of all documents used throughout the regular course of business
    • Flow of funds structure
    • Company formation documents
    • Company management and organizational charts
    • Commitment to provide required security 

Money transmitters must pay a $10,000 application fee when submitting their application.

How Do Texas Money Transmitters Renew Their License?

Money transmitters can renew their license online through the NMLS. Applicants need to simply login to their account to access their renewal application. The Texas 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 Texas Money Transmitter License?

Texas does not require money transmitters to obtain any form of liability insurance as a prerequisite to obtaining a business license. Money transmitters must purchase and maintain a surety bond (limits outlined above).

How Do Texas Money Transmitters File Their Bond?

Money transmitters should submit the completed bond form, including the power of attorney, electronically through the NMLS. The Texas Money Transmitter Surety Bond requires signatures from both the surety company that issues the bond and a representative from the money transmission 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, city, county, and zip code
  • Bond amount
  • Date the bond is signed
  • Date the bond goes into effect

What Can Texas Money Transmitters Do to Avoid Claims Against Their Bond?

To avoid claims against their bond, money transmitters in Texas 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
  • Transmit all funds owed to consumers

What Other Insurance Products Can Agents Offer Money Transmitters in Texas?

Texas does not require money transmitters to obtain 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 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 Texas Money Transmitter Customers?

The NMLS conveniently provides a public database to search for active money transmitters in Texas. The database can be accessed here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services

2021-12-28T15:17:30-05:00