Surety bonds are a form of consumer protection. Bonds protect consumers from businesses when those businesses fail to adhere to applicable rules and regulations. In the financial sector, for example, surety bonds may be required to ensure client finances are not mishandled by the principal. If the client does incur a financial loss, the surety bond guarantees money is available up to a certain amount as compensation.
Recently, the state of Virginia enacted two pieces of legislation. HB 10 and HB 1553 establish surety bond requirements for professionals in the financial service industry.
Virginia House Bill 10
VA H 10 applies to qualified education loan servicers. Passed on April 22, 2020, and effective on July 1, 2021, the bill creates a surety bond provision wherein the servicer must obtain a bond to legally practice business. The SCC (State Corporation Commission) will accept applications beginning March 1, 2021.
Pursuant to the bill, a qualified education loan servicer must obtain a license, regardless of whether or not they work in an office or have a physical presence in Virginia, such as online. As stated in HB 10, the Commissioner has the ability to determine the amount of the surety bond requirement, and the bond amount can be anywhere from $50,000 to $500,000.
Individuals seeking to become qualified education loan servicers in the state of Virginia must submit an application for a license if they are not exempt from application procedures. Based on the criteria listed in the bill, the Commissioner will determine if an exemption is granted.
Because of the financial nature of the work done by loan servicers, the applicant’s character must point to their ability to run a fair and trustworthy business in the community. For example, the applicant cannot omit certain information from the application.
What is a qualified education loan servicer?
As defined in the bill, a qualified education loan servicer is “any person, wherever located, that either receives scheduled payments from a qualified education loan borrower, maintains account records for any qualified loans, and/or interacts with a qualified education loan borrower.” Essentially, a qualified education loan servicer works hand-in-hand with a qualified education loan borrower by providing funds for individuals seeking to borrow them. These funds are specifically used for educational purposes.
Virginia House Bill 1553
Enacted on April 7, 2020, and effective on July 1, 2021, HB 1553 creates regulations for debt settlement service providers. The bill mentions the State Corporation Commission’s surety bond requirement. To become a Virginia debt settlement service provider, applicants must file an application with the Commissioner. Additionally, an application must be accompanied by a surety bond in an amount of at least $25,000 but not to exceed $350,000.
In addition to the surety bond requirement, an applicant must be financially responsible and provide provisions for avoiding conflicts of interest. Essentially, the applicant’s credit counselors must be certified through a third-party association that has no connection with the applicant. Furthermore, the applicant must have fidelity bond coverage, which ensures employer protection, and the applicant cannot be the subject of any administrative or regulatory governmental proceedings.
What is a debt settlement service provider?
According to the bill, a debt settlement service provider is an individual who engages in “any action or negotiation initiated or taken by or on behalf of any consumer with any creditor of the consumer for the purpose of obtaining debt forgiveness of a portion of the credit extended by the creditor to the consumer or reduction of payments, charges, or fees payable by the consumer.” In other words, a debt settlement service provider assists a consumer in reducing or settling the amount of debt the consumer owes.
Looking to purchase a surety bond?
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