Just like almost all privately owned businesses, credit services organizations must follow certain rules and regulations. A credit services organization is a person or company that, for a fee, improves the consumer’s credit or assists the consumer with obtaining a consumer credit extension.
In most states, a credit services organization bond is a requirement for business registration.
Recently, the state of Texas passed a new law (House Bill 2594) that requires credit services organizations that participate in deferred presentment transactions or motor vehicle title loans to acquire a surety bond. Let’s break this down.
- A deferred presentment transaction is a transaction in which a person being given payment cashes a customer’s check without presenting the check for payment for up to 31 days. Technically, the payment has been made, but the check has not been presented for deposit.
- The Texas legislature is concerned that various companies will unethically practice deferred presentment transactions — especially when it comes to customers with car loans. So, the state now requires that companies purchase a $10,000 surety bond for every location of the credit services organization (up to a maximum of $2.5 million). For example, if you’re a business owner who owns three locations of a business that falls into this category, you’re required to purchase a $30,000 surety bond before you can practice legally.
- To put it simply, HB 2594 requires payday and car title lenders specifically to be licensed and regulated by the state through the use of a Texas surety bond.
Although not all credit services organizations will be required to obtain this new type of bond, those that are required no longer have to purchase the older type of bond that was once needed by all credit services organizations in the state of Texas. In addition to knowing what kind of bond you need, it’s also important to know how your surety bond will function.
A surety bond is purchased by the principal — you, the business owner — from the surety provider. The bond protects the obligee — the party requiring the bond, the state — from suffering financial losses and more as a result of the principal’s poor financial decisions, damages, unethical decisions or failure to follow state and local laws. When you purchase a credit services organization bond, you promise the state of Texas that you can be trusted as an ethical business owner.
To find out if you’re required to purchase the updated bond type, refer to Texas Financial Code 393.002.
Whether you need to purchase a new bond or renew your existing bond, SuretyBonds.com can help you through the bonding process as smoothly as possible. Simply call 1 (800) 308-4358 or contact a surety specialist online to get started.