A surety bond is a legal tool commonly used by governments to encourage lawful and ethical behavior by businesses.
When operating your credit services organization (CSO), the bond acts as a legal contract between three parties:
The bond helps protect your customers and the state from harm caused by any misconduct in how you run your CSO business. In the event that a claim is made against the bond and upheld, damages can be paid up to your policy's liability amount. You will then be required to repay your surety company.
Credit services organizations charge consumers for services such as obtaining credit extensions, improving/repairing credit ratings, and preventing mortgage foreclosures. Due to the sensitive nature of credit services, many states require these types of businesses to post a surety bond before they can be licensed.
The cost of your CSO bond will vary based on the necessary bond amount, the finances of your organization, and your credit rating. You will only have to pay a percentage of the bond's total amount as an annual fee, which is known as the bond's premium.
Each state will require different bond amounts, which can range from $10,000 in Iowa to $100,000 in California. And premium rates will vary from as low as 1% to as high as 15%, taking into account several financial factors, including the applicant's credit.
Below is a list of the states in which NNA Surety Bonds currently offers policies for credit service organizations. If you don't see your state listed, contact us to verify whether a bond is needed in your state.
|State||Bond Amount||Cost* (Annual Premium)|
|California||$100,000||$2,625 (two years)|
Many states require you to post a credit services organization bond before you can be licensed to operate. Surety bonds allow you to do business while protecting your clients and the state from unlawful or unprofessional behavior by your agency.
An example of such behavior would be making false or misleading statements regarding a consumer's creditworthiness to a creditor.
In an event like this, the consumer can make a claim against your bond and, if the claim is upheld in court, the bond will be used to reimburse the consumer for any losses. You will then be required to repay the surety, or issuer of the bond.
In this way, surety bonds act as protection for consumers and as a way to mitigate unethical and illegal practices.
While states will vary in their required bond amounts, Maryland has stricter bond requirements than other states.
Maryland refers to this bond as a credit services business bond and requires licensees to post a bond in the amount of $50,000. More importantly, the state requires a bond be posted for each branch location.
This means, if your organization has more than one location in the state of Maryland, you are required to obtain a bond for each location.
Want to know about credit services bonds in Maryland? Learn more about Maryland CSO bond requirements.
CSO policies are available through NNA Surety Bonds in the following states: California, Illinois, Iowa, Maryland, Minnesota, and Texas. It's quick and easy to inquire about your surety bond online. And we'll walk you through the application process.