Wisconsin Loan Company License Bond
What is a Wisconsin loan company bond?
The Wisconsin Department of Financial Institutions (DFI) requires any organization that offers loans with interest rates of 18% or higher to post a surety bond for each location of their business.
Like other bonds, this policy is not another form of insurance. Instead, the bond acts as a legal agreement between three parties:
- The principal: The loan company posting the bond
- The obligee: The Wisconsin DFI who requires the bond
- The surety: The issuer of the bond
A surety bond protects consumers and reimburses them for losses they sustain due to negligence or unlawful practices by the loan company.
How much does a loan company bond cost?
In Wisconsin, loan companies must post a bond in the amount of $5,000 for each location of their business, up to a maximum of $50,000.
Premium rates vary based on several factors, including:
- The amount of your bond
- Your credit rating
- Your loan company's license and financial history
The cost for your bond can range between 1% to 15% of the policy's full liability amount. NNA Surety Bonds issues policies for Wisconsin loan companies for as little as $100 per year for a bond of $5,000.
Why does my loan company need to be bonded?
Wisconsin's DFI has included posting a bond as part of the licensing process for loan companies. Therefore, your loan company will not be permitted to legally offer services without posting a surety bond.
Federal and state-level agencies issue regulations regarding consumer lending and financial services. These agencies often require a bond as a means to encourage best practices and lawful operations by loan companies.
How does this bond work?
Your bond acts as a legal tool that helps protect your clients.
In the event your lending company violates a law or regulation, a claim can be issued against your bond. If this occurs, and the claim is upheld by the court, your bond will be used to cover any fees, fines, or damages that were incurred as a result of your company’s actions. You will then have to pay this amount back to the surety.
Upheld claims can make it difficult to obtain future bonds, in turn jeopardizing your business. In this way, surety bonds encourage lawful actions and best practices by your loan company.