Unregulated Personal Sureties Remain Controversial

Unregulated Personal Sureties

Despite ever-increasing regulations requiring the use of surety bonds in countless industries, unregulated personal sureties remain relatively common.

Some individuals have difficulty qualifying for certain surety bonds due to the hefty credentials that are often required. For example, entrepreneurs looking to open a business for the first time typically have trouble getting bonded if they lack a good credit score or a significant financial history. Some worry that a more heavily regulated surety industry will hurt small business owners who would otherwise be unable to secure necessary bonds.

Applicants who fail to qualify for bonds from corporate providers currently have the ability to work with personal sureties who bond principals on a case-by-case basis. Individual sureties offer up their personal finances when guaranteeing the work of a professional or business. If the bonded principal’s work should fall through, then the personal surety is expected pay the bond amount to the claimant as would a corporate surety.

The lack of regulation within the industry, however, means that it can be difficult to get personal sureties to pay up when necessary. This can ultimately leave wronged parties with no way to collect recompense, rendering the bond virtually useless. Costly court litigation often follows, and resolving the problem becomes even more costly for the obligee.

Those in favor of keeping the industry unregulated argue that corporate sureties simply want to keep control of the market. The Baltimore Sun opted to view the situation as objectively as possible in a March 21 article:

“In any event, beware of people praising free trade and warning about excessive regulation hurting the economy. The housing crisis was caused by too little regulation. For surety companies as well as mortgage-bond sellers, customers ought to have some government-mandated assurance of capital and credit adequacy.”

In the end, surety bonds act as financial guarantees that promote the regulation of certain industries, yet the surety industry itself finds itself working within little regulations. In any case, it appears as though the discussion will continue.

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