Learn everything you need to know about Credit Services Bonds, and get bonded today with Surety Bond Professionals.
What Are They?
Credit services bonds are also referred to as credit services organization (CSO) bonds, credit counseling organization bonds, and credit repair services bonds. Those names should give you a good idea of what kinds of organizations purchase this type of bond.
These bonds protect the states that require them and consumers against financial losses that can be attributed to the unlawful or unethical actions of the bonded party.
Who Needs Them?
Businesses that charge customers to help them improve their credit scores or to negotiate credit extensions or otherwise improve their credit situation may be required to purchase a credit services bond, depending on the laws in their state. These bonds are typically issued to a business owner rather than to the business itself.
How Do They Work?
Like all surety bond agreements, these bonds are a legally binding contract involving three parties:
- The state agency that regulates and oversees the credit services industry is the “obligee” requiring the bond
- The owner of the credit services organization is the “principal” required to purchase the bond
- The company that underwrites and issue the bond is the “surety”
The terms of the bond agreement specific the conduct that would be considered a violation of the agreement and could incur a claim against the bond. Both the obligee and consumers have the right to file a claim if they suffer a financial loss due to the misconduct of the principal.
What Happens When a Claim is Filed?
When a claim is filed, the surety investigates it to make sure that the claim is valid and should be paid. Ideally, the principal would immediately pay any valid claim, but that doesn’t always happen.
Often, the principal needs a little time to gather the necessary funds. The surety may step up and pay the claim on the principal’s behalf. The principal is then legally obligated to reimburse the surety for any such advance payments.
What Do They Cost?
The annual premium for a credit services bond is a small percentage of the required bond amount (also known as the bond’s penal amount). The required bond amount is established by the obligee and varies from one state to the next. That percentage, known as the premium rate, is set by the surety for each bond applicant on a case-by-case basis.
The surety’s main concern is the principal’s ability to repay any advance claims payments. So, the key factor in assigning a premium rate is the principal’s personal credit score. The surety is also concerned about the likelihood of the principal acting in a way that results in claims, so the bond applicant’s prior industry experience may also be taken into consideration.
With good credit, the premium rate for a credit services bond is typically in the range of 1% to 3%. Those with poor credit may be assigned a higher premium rate.
Get Bonded Today
Apply today to get the credit services bond you need to do business legally in your state.