Money transmitter license bonds are a subset of the broader license bond category that must be filed with the state government agency responsible for regulating money transmitters in the transmitter’s jurisdiction as a condition of licensure for most money transmitters, check cashers, check sellers, or payday loan providers. Most states handle money transmitter licensing directly, while a handful of private companies such as MEMO Financial Services and Western Union may require bonds for agents offering their services.
Money transmitter license bonds must be issued by insurance carriers admitted in the state where the government agency or private company requiring the bond resides. The insurance carrier issuing any surety bond, such as a money transmitter license bond, will also be referred to as the “surety company” or the “bond company”. Money transmitter license bonds refer to the transmitter as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Money transmitters are required to purchase license bonds by state and local statutes to protect a government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from a money transmitter breaking state or federal laws. The surety company provides the government a guarantee (the surety bond) that the customers of a licensed money transmitter will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the money transmitter license up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, money transmitters are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.
Money transmitter license bond violations triggering a bond payout may include a money transmitter committing fraudulent transactions, failing to comply with Financial Crimes Enforcement Network (FinCEN) regulations, or laundering money.
Money transfer license bonds generally cost between 2% and 8% of the bond limit.
|Credit Score||Premium Rate||Bond Cost|
|680 or above||2.0%||$200|
The actual cost of a specific money transfer license bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the money transmitter’s license history, experience and creditworthiness. Money transmitter bonds required by a local government (city or county) tend to have the lowest cost, while state requirements have potentially higher costs and/or more strict underwriting requirements.
Credit checks are required for most money transmitter license bonds required by state agencies. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and money transmitter (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the money transmitter via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a money transmitter license bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 money transmitter bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Money transmitter bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the transmitter business and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the check casher failing to pay premiums due, claim payouts, or material changes in the transmitter’s credit score. Money transmitter bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Money transmitter bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.
To find information on specific money transmitter license bonds, select the state and use our search function to find any requirement across the country.