Surety Bond Changes 4 Indiana Financial Professionals

HB 1081 has passed House Committee on Financial Institutions with amendments. If adopted by the Indiana Legislature, the law will increase the surety bonding requirements of most financial professionals in the State of Indiana

HB 1081 revises the existing bond requirements for several different financial services providers and creates a new bond requirement for pawnbrokers. The bill would add several new provisions to existing law for the following license bonds:

• small loan lenders
• debt management service providers
• money transmitters

Also included would be persons and entities that would not otherwise be subject to the mortgage lender or broker bond:

• persons acting as creditors in first lien mortgages,
• entities exempt from licensing who employ mortgage loan originators,
• creditors licensed as supervised lenders
• lenders who are exempt entities employing mortgage loan originators.

The new provisions added for each license are substantially similar throughout the bill.

Under HB 1081, the surety issuing each of these bonds would need an “A-” rating from a nationally recognized investment rating service. The bill also provides that the cancellation of a surety bond would not affect any liability incurred or accrued during the period when the bond was in effect. The statutes currently are silent on the surety’s ability to cancel the bond. The bill would authorize the Director of the Department of Financial Institutions (Director) to obtain satisfaction from the bond for expenses incurred in issuing an order or recovering a judgment. The bill provides that notices required in connection with the bond would have to be in writing and delivered by certified mail, return receipt requested and postage prepaid, or by overnight delivery using a nationally recognized carrier.

For most of these existing license bonds, HB 1081 would require the bond to remain in place for two years after the licensee stops providing financial services to Indiana residents. For money transmitters, the bill would add a five-year tail. For small lenders, the existing two-year tail would be revised under this bill to make the bond payable to the State in addition to consumers as provided in existing law.

The new license bond for pawnbrokers contains all the above provisions, including the two-year tail. The Director will determine the bond amount.

For debt management companies, the bill, as introduced, specified a new $100,000 bond amount. Upon renewal, the bond would have to be in an amount equal to the “average monthly balance of funds held in trust for Indiana residents during the licensee’s most recently concluded fiscal year.” Under existing law, the Director determines the bond amount. The bill was amended to require the bond amount to be for $50,000, or “average highest daily balance of funds held in trust for Indiana residents during the licensee’s most recently concluded fiscal year, not to exceed $100,000,” whichever would be greater. Of note, the bill would revise the duties of the debt management service provider to eliminate finance management services. Current law covers businesses that assist in the ,anagement of both debt and finances.

The bill specifies a new $300,000 bond amount for money transmitters. Existing law requires the bond to be for $300,000 or the amount resulting from the formula, whichever is less. The bill would eliminate the option of alternative forms of security such as letters of credit that may be used in lieu of a surety bond for money transmitters. The bill would require a surety bond only instead.