What is a Consumer Goods Repair Bond?
Consumer goods repair license bonds are a subset of the broader license bond category that must be filed with the government agency (city, county, or state) responsible for regulating consumer goods repair activity in the repairer’s jurisdiction as a condition of licensure for most repairers. The District of Columbia handles consumer goods repair licensing directly, and Wisconsin allows local municipalities to regulate and license repairers.
Consumer goods repair license bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as a consumer goods repair license bond, will also be referred to as the “surety company” or the “bond company”. Consumer goods repair bonds refer to the repairer as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Why is a Consumer Goods Repair bond required?
Repairers 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 repairer breaking goods repair license law. The surety company provides the government a guarantee (the surety bond) that the consumer of a licensed goods repairer will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the repairer 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, consumer goods repairers 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.
Consumer goods repair license bond violations triggering a bond payout may include a repairer failing to disclose any service charges or fees (whether work is performed or not), advertising misleading or untrue information, making false promises likely to influence or persuade the consumer, and/or failure to comply with applicable provisions of their license.
How much does a consumer goods repair bond cost?
Consumer goods repair license bonds cost between .5% and 1% of the bond amount with a minimum premium of $100. The DC consumer goods repair bond costs $175 for 2 years.
Example: $5,000 DC Consumer Goods Repair Bond Cost
|Bond Amount||Premium Rate||Bond Cost|
|$5,000||1.0%||$175 / 2 Years|
Is a Credit Check Required for Consumer Goods Repair Bonds?
Credit checks are not required for consumer goods repair bonds.
How does the wording in the bond form impact the cost of a consumer goods repair bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and repairer(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 consumer goods repairer via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a consumer goods repair 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 consumer goods repairer 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. Consumer goods repair 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 repairer 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 repairer failing to pay premiums due or claim payouts.. Consumer goods repairer 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”). Consumer goods repair bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.