Transmitter Bonds

A Money Transmitter Bond, also called a Money Remitter Bond, guarantees that a business is licensed and operates by appropriate state laws and regulations. Most states require that any business that remits or transfers money must be bonded in order to operate.

A transmitter bond is also a surety bond offered by bonding companies or insurance companies. Surety bonds are a guarantee by the bonding company, or the surety, that one party of the contract, the principal, will perform their duties for the other party, the obligee. If the principal does not meet their obligations, the surety will compensate the obligee.

Which Type of Companies Utilize Transmitter Bonds?

In the case of transmitter bonds, the principal is usually a company who sends money from one location to another via the U.S. Federal Reserve banking system, also known as Fedwire. Some examples of companies who send monetary transmissions are Western Union or JP Morgan Chase.

Unfortunately, as the industry evolved, many money transmission companies began practicing unethical and even fraudulent activities related to money transfers. In response, a number of groups were established to help the industry. For example, the National Money Transmitters Association (NMTA) was formed in 1999 as a unified group that would address issues and help "improve the maligned image of money transmitters." The Money Transmitter Regulation Association (MTRA) was also formed in 1989 to aid the "efficient and effective regulation of the money transmission industry."

The Cost and Underwriting of Transmitter Bonds

From a surety company's viewpoint, transmitter bonds hold an elevated risk compared to other types of bonds. Risk, in the definition of the insuring company, is the chance that they will have to pay out a claim. An insurance company will have to make good on behalf of a company who fails to meet their obligations or performs them poorly.

Transmitter bonds cost about 2.5 times the normal premium for a standard commercial bond. Of course, rates for a transmitter bond may vary depending on the creditworthiness of the applying company and the bonding company involved. A company who would like to be bonded for money transmitting usually looks to an agent who can offer the best product at the best price from a variety of different bonding companies. Each bonding company will have their own underwriting procedures.

With traditional insurance products, such as auto or health, the insurance company expects to pay out claims. In contrast, typical underwriting for transmitter bonds is performed on the basis that no claims will be paid out. And in cases where the applying company is found to hold too much risk, it is either denied the bond or is asked to post a 100% collateral with the bonding company.

Transmitter bonds are a necessary expense for wire transfer companies. However, along with cost comes the assurance that your money is sent accurately and confidently.

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