Money transmitters are required to hold a surety bond in almost every state (40 states to be exact). The Money Transmitter Bond—or Money Services Business Bond—is a form of financial security utilized by governing entities to ensure reimbursement should a citizen in the state be negatively impacted by the actions of a money transmitter.
By providing the Money Transmitter Bond, Jet Insurance Company guarantees recompense in the event of financial loss to the state or the public. Let’s cover how Money Transmitter Bond claims can be avoided and what to do should a claim happen.
Staying Away From Claims
Cutting through red tape (paperwork, licensing, surety bond, etc.) is necessary to become a money transmitter business. Due to the significant role money transmitters hold, there is a lot of responsibility that must be upheld to avoid claims.
Money Transmitter Prohibited Acts
As a licensed money transmitter, you are expected to follow all regulations pursuant to your State’s statutes, as well as fulfill contractual obligations. Here are a few examples of prohibited actions:
- Embezzling or misapplying money or property that belongs to the money services business, a customer, or an authorized vendor
- Falsifying reports, accounts, books, files, or documents
- Omitting information from reports
- Possessing fraudulent identification
Complying with the statutes is the best way to avoid license suspension or revocation, large fines, civil action, and/or a bond claim. A bond claim is likely if the licensee displays acts of criminal malfeasance such as negligence, embezzlement, or business fraud, and then fails to address the issue(s) and/or comply with the regulator’s rulings.
Who Can File a Claim Against a Money Services Business?
In most states, claimants (people financially harmed by the money services business) can bring a direct action against the Money Transmitter Bond. The regulator may bring suit on behalf of the claimant or for themselves for any financial loss incurred due to a license infraction.
How Much Bond Coverage Is Provided?
The bond limit is determined by state regulators and set in the statutes. Bond amounts for money transmitters and money services businesses vary from $50,000 to $2,000,000. A claim payout will never exceed the Money Transmitter Bond limit.
Claim Was Filed—Now What?
No two bonds cover the same risks. That being said, Jet will make the bond claim process seamless while sifting out faulty claims.
Here’s a general claims process example:
License Infraction (Complaint)
Taylor has been a licensed money transmitter for several years and has a clean track record. Recently, she ran into some money troubles and made the decision to take money that a client (Tom) has trusted her with - $200,000 to be exact.
Tom calls Taylor to find out why his money was never delivered to the other party, as agreed upon in the contract. Taylor explains she needed the money for something personal and planned to restore it soon. Taylor is unable to refund Tom’s money at this moment.
Investigation and Judgment
Understandably, Tom is upset. He files a complaint with the regulator. An investigation ensues to address the validity of the complaint. At this time, the regulator interviews employees at the money services business where Taylor works. Documents and files are collected to assist in the investigation.
As it turns out, Tom is correct and the regulator is able to prove that Taylor embezzled the funds into her personal bank account, therefore committing a violation of the statutes.
Recovery and Indemnification
The regulator requests that Taylor refund the $200,000. Taylor doesn’t have $200,000 to reimburse Tom.
This is where the surety bond comes in. The regulator demands that the surety company (Jet) remit payment from the surety bond in the full bond amount of $150,000.
Even after a regulatory agency does a thorough investigation, Jet looks into all documentation to rule out any malfeasance. However, most claims investigated by the regulator are legitimate.
Claim payouts can never exceed the bond limit, so even though Tom is given $150,000 through the surety bond claim payout, he is still down $50,000.
In addition to paying Jet back for the claim, Taylor is responsible for the remaining embezzled amount of $50,000. Taylor may be charged court fees and other civil penalties, in addition to having her license revoked.
Important note: Money Transmitter Bonds often have a tail, meaning claims can be filed for a set amount of time after the license ends. This varies from state to state but is generally at least a year and up to five years.
Each State’s laws vary slightly, so it is best to read up on these procedures for the State(s) regulating your business.