How to Get a Collection Agency License in Texas

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Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Texas collection agency license bond needs. Learn how to get a Texas collection agency license, below.

What Collection Agency Licenses Are Issued in Texas?

Texas does not issue licenses to collection agencies, but that doesn’t mean that debt collection in Texas is unregulated. Chapter 392 of the Texas Finance Code prohibits unlawful and unethical debt collection practices by third-party debt collectors, which may be cause for civil litigation and possible criminal penalties.

A third-party debt collector is any individual or entity that collects or attempts to collect debts on behalf of the original creditor.

What Are the Requirements to Work as a Debt Collector in Texas?

Texas debt collectors don’t need to obtain a license or register with the state. However, the Texas Secretary of State requires debt collectors to purchase a collection agency surety bond, more accurately referred to as a Third Party Debt Collector bond, in the amount of $10,000. Operating as a debt collector in Texas without being bonded is a code violation.

Why is a Texas Debt Collector Bond Required?

A Texas Debt Collector bond is a debt collector’s guarantee to operate in full compliance with applicable sections of Chapter 392. It provides recourse for consumers who experience a financial loss due to the actions of a Texas third-party debt collector. The injured party has the right to file a claim for damages against the debt collector’s bond to obtain compensation.

How Are Texas Debt Collector Bond Claims Paid?

The surety bond industry uses certain terms to refer to the three parties brought together by the legally binding contract for a debt collector bond:

  • The “obligee” requiring the bond is the Texas Secretary of State.
  • The “principal” is the third-party debt collector required to purchase the bond.
  • The “surety” is the company that underwrites and authorizes the bond.

The principal is entirely responsible for paying all claims that the surety finds to be valid, up to the $10,000 bond amount. This is also referred to as the bond’s “penal sum,” because it’s the maximum amount that will be paid out on a claim.

If the principal doesn’t pay a valid claim promptly, the surety will make the payment to the claimant on the principal’s behalf—in effect, lending that amount to the principal. The principal is then required by law to repay the resulting debt to the surety.

How Much Does a Texas Debt Collector Bond Cost?

The annual premium for a Texas debt collector surety bond is a small percentage of the bond’s penal sum. That percentage is known as the premium rate, and it’s assigned by the surety to each bond applicant on a case-by-case basis. The primary underwriting factor is the principal’s creditworthiness, as indicated by his or her personal credit score.

A high credit score is rewarded with a low premium rate, potentially as low as 1% of the bond’s $10,000 penal sum, or only $100. With lesser credit, the premium rate could be substantially higher because of the greater credit risk the surety will be taking on.

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