A collection agency is a for-profit business that engages directly or indirectly in the solicitation and collection of past due debts and/or claims. To be registered as a commercial or consumer collection agency, and to maintain licensure, a surety bond is typically mandated by a governing regulator (on record, 35 states require the financial security of a bond).
Collection agencies are generally regarded as high-risk to the public due to the solicitation data they have access to and the responsibility of collecting/transferring debts between consumers, businesses, and credit grantors. Because of this, a Collection Agency Bond (oftentimes referred to specifically as a Commercial or Consumer Collection Agency Bond) is required by state regulators to ensure the credibility and dependability of the licensee.
So where does Jet Insurance Company come in? By providing a Collection Agency Bond, Jet financially guarantees a means of restitution to any party that has been damaged by the collection agency’s transgressions. Hopefully, it never comes to this, but bond claims do happen. Let’s go over how Collection Agency Bond claims can be avoided and what to do should an official claim occur.
How to Avoid Action on Your Bond
As a licensed collection agency, you and your employees will be expected to comply with all applicable licensing rules, as well as fulfill any contractual obligations agreed upon with the clients of your agency. Yet state regulations tend to be extensive and will require a thorough understanding before collection agency services may be performed.
To ensure you are aware of what NOT to do as a collection agency, take a look at various examples of prohibited acts below.
- Fail to keep a record of debts/claims owed, collected, or remitted
- Engage in deceptive, unfair, or unreasonable practices
- Harass or threaten a person or business to procure the collection of a debt
- Collect or attempt to collect a larger amount of money than what is actually owed
- Add interest fees not authorized by the state
- Share commercial or consumer debt information with a third party
- Once the collection has been made, fail to properly transfer this debt over to whom the collection was owed within a certain time period (typically 30 days)
Claim Process Details
Who Can File a Claim on a Commercial or Consumer Collection Agency Bond?
In most states, a damaged client may pursue civil action against the collection agency directly which may lead to a bond claim. Additionally, the state regulator who oversees your license may file a claim on behalf of a damaged claimant or for their own benefit due to financial losses caused by license infractions.
Are There Limits to Claim Filings?
A claim may be filed against a Collection Agency Bond for activities performed during the bond’s active duration and grace period (best known as a cancellation period in legal terms). So if the bond is cancelled early, the bond may be subject to a mandated cancellation period (e.g. 30, 60, or 90 days) which will, in turn, extend the claim filing window. Each bond form specifically states how long the cancellation period is.
Some states will specify the limitations on how long after a bond is cancelled for a claim to be made for prior transgressions, commonly known as a bond “tail”. For instance, the State of Arizona does not allow action to be pursued against a Collection Agency Bond beyond three years of the violation on which the claim is based. After that, action cannot be pursued.
As for the amount of coverage, bond limits for commercial and consumer collection agencies vary from $5,000 to $50,000 and are either determined on a case by case by a state regulator, stated in the statutes, or are required to be a standard amount via the bond form. A claim, or multiple claims on one bond, in no circumstance exceed the bond’s limit. Once a surety bond has been drained of its funds due to claim payouts, no further claims may be filed against it.
What Would a Collection Agency Bond Claim Look Like?
Let’s saythat the Banks Collections Agency of Arizona, a consumer collection agency owned by Alex Banks, has been hired by Nurture Health to collect consumer medical debt from various patients with overdue bills. The agency begins its solicitation/collection services and is successful in making some collections.
Now according to Arizona law, once a collection has been made, the proceeds from the debts paid are to be transferred to the customer (Nurture Health) within a 30-day period (this practice is pretty typical for all states). However, a Banks employee that was supposed to be in charge of this process has become restless at his job and neglects to complete this task even after being sent several requests to do so from the customer. So what is Nurture Health to do?
The first step that Nurture Health can take is to call the Banks Collection Agency directly to request the collected claims that are owed (this would be the easiest way to resolve the problem). However, as stated previously, Nurture Health has already sent several collection requests that have been either ignored or rejected. If the agency is unable or unwilling to transfer the collected debts to Nurture Health then they may file a complaint with the state regulator that is in charge of Alex Banks agency license. Once a complaint has been filed, the regulator’s team will look into the matter.
Once the regulator begins an investigation of the license violation (this process may include court proceedings), it will be up to Nurture Health to provide evidence of the accusation. For instance, verification that the debt was collected by the agency and not sent to Nurture Health within the regulated timeline is needed, as well as any testament regarding the negligence/insubordination of the agency employee, and the financial damages caused.
If the complaint is found to be valid by the regulator, they may offer to file a claim on Alex Bank’s Consumer Collection Agency Bond on behalf of Nurture Health or direct the company to file a claim themselves.
Occasionally, the surety provider (Jet) will receive complaints about a bondholder directly. If this happens, our team will conduct a review and official investigation of the matter. In cases where the complaint is found to be valid, Jet will then handle the claim process from then on as we are obligated through our surety bond agreement.
In this case, Nurture Health asks the state regulator to file a bond claim on their behalf. Once the claim notice has been received by the surety provider (Jet), a review and investigation of the claim will proceed per usual.
As we know, the regulator has already completed an investigation of the claim and made a judgment that it is valid, therefore, the claim will likely hold up. If this is the case, Jet is legally obligated per the Consumer Collection Agency Bond form to payout the claim.
Payment will be equal to the fiscal amount of damages caused and may not exceed the bond’s limit. As soon as the payment goes through, the claim case will be closed and Alex Banks must then reimburse Jet for the full amount of the payout. Due to this transgression, Banks Collection Agency will likely face license penalties by the state regulator as well.
The case is not over yet, however, as Banks must eventually pay back Jet Insurance Company for the bond payout. All surety bonds with all surety carriers are more like a line of credit than insurance. The bond is a promise of financial security to everyone damaged by the person who purchases it. Failure to repay the bond may result in further problems for the company, such as trouble obtaining a new surety bond which is needed for licensure purposes.
It is important to note that each state’s laws vary slightly, so it is best to read up on these procedures for the state or states that are regulating your collection agency. Take a look at the chart below for further details.