New regulations concerning requirements to become a licensed Kentucky consumer loan company through the Kentucky Department of Financial Institutions recently passed. Enacted on March 26, Kentucky House Bill 285 requires consumer loan companies to post a surety bond. The bond must be in an amount of at least $10,000 if the licensee is privately held and at least $250,000 if the licensee is a publicly traded entity.
According to Kentucky House Bill 285 Section 4(1)(a), a consumer loan company refers to an entity licensed to engage in the business of making loans to a consumer for personal, family, or household use in a loan amount or value of $15,000 or less.
What is the difference between a consumer loan company and an industrial loan company?
A consumer loan company provides loans exclusively for consumer use, while an industrial loan company will typically distribute loans for businesses such as bank loans, invoice financing, and cash flow loans. Both types of loan companies require the business or consumer to post a form of collateral, such as a house or other property, or list out assets.
One of the biggest differences between consumer and industrial loan companies is the size of the loans, with industrial loans typically involving a greater amount of money. Additionally, both consumer and industrial loans may lose posted assets, also known as collateral, in the event that regular payments are not made on the loan.
What is a Kentucky consumer loan company bond?
A Kentucky consumer loan company bond is a type of surety bond that protects consumers in the event the loan company commits any activity resulting in financial damages. The bond ensures the recovery of expenses, fines, and fees levied or imposed against the licensee, and for losses or damages.
In the event that the consumer loan company does engage in criminal activity that causes financial harm to a consumer, the Kentucky Department of Financial Institutions will determine the exact amount of damages that a consumer incurred. Subsequently, the Kentucky Department of Financial Institutions will regulate how much the consumer loan company will need to pay back.
How much does a consumer loan bond cost?
The exact cost of a consumer loan company bond is subject to underwriting and is based on a number of factors including the applicant’s credit score, personal and business information, and the amount of the required surety bond. For instance, the cost of a consumer loan business bond starts at around 1%, meaning an applicant with excellent credit may be approved for a $10,000 bond at a rate of just $100 for a year of coverage.
Do all Kentucky consumer loan companies need to be bonded?
To legally work as a professional consumer license company in the State of Kentucky, companies must post a bond or irrevocable letter of credit if falling under Kentucky’s definition of a consumer loan company. A consumer loan company qualifies as an entity making loans for the amount of $15,000 or less.
An alternative option for consumer loan companies who are unwilling or unable to obtain a surety bond is to post an irrevocable letter of credit to comply with the State of Kentucky regulations for consumer loan company licenses. The terms of the letter of credit are considered irrevocable because all parties must agree to changes before any terms are modified. By posting an irrevocable letter of credit, the bank guarantees payment for goods and services being purchased by the individual. In the case of consumer loan companies, the letter guarantees the consumer will be able to pay back a loan based on their assets or collateral.
How to become a licensed Consumer Loan Company in Kentucky
Individuals seeking to become a licensed consumer loan company in Kentucky will need to complete the following registration requirements:
- Follow applicable administrative regulations under KAR 808, Chapter 6
- Submit a completed and notarized application form
- Forward the State License Confirmation form to all states in which the business is currently licensed and operating
The processing time for a consumer loan company license is approximately 45 days. After being approved, the applicant will receive a letter of approval and a license certificate from Kentucky Department of Financial Institutions. A consumer loan company license must be renewed annually by Dec. 31 to follow all regulations set by the State of Kentucky. License renewals have an annual fee of $300 per business location.
Need a Kentucky consumer loan company surety bond?
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