Who Needs a Collection Agency License?
The Arizona Department of Financial Institutions (AZDFI) requires businesses and individuals to obtain a collection agency license in order to engage in any of the following activities:
- Active debt buying (direct collections on accounts)
- Passive debt buying(no direct collections)
- First party debt collection
- Judgement Recovery
- Third party debt collection
What Does the Licensing Process Involve?
Although AZDFI regulates and oversees the debt collection industry within the state, it uses the National Mortgage Licensing System (NMLS) to process applications for new or renewal collection agency licenses. Here is an overview of the application process:
- Complete the Arizona Collection Agency application forms on NMLS. The Company form (MU1) is the form used to apply for a collection agency license. The Individual form (MU2) must be completed by the designated control person and submitted with the Company form. Branch licenses. Branch license applications cannot be submitted until the collection agency license has been approved.
- Gather any other documents that must be uploaded to NMLS along with the completed application form, such as financial statements.
- Obtain a surety bond from a surety company authorized to do business in Arizona. The amount of the bond is based on the collection agency’s gross annual income from business transacted in Arizona during the previous year. The minimum bond amount is $10,000 and the maximum is $35,000. Get Bonded Now
- Pay the required Arizona application fee (currently $1,500) fee. There is a separate license fee, but that is paid after the application has been approved.
- Submit the completed application, accompanying documents, and surety bond through NMLS for approval.
Why is a Surety Bond Required?
A collection agency bond guarantees that the bonded company or individual (referred to as the bond�s �principal�), will conduct business in compliance with all applicable laws and regulations, including the Fair Debt Collection Practices Act (FDCPA).
It also protects AZDFI (the bond�s �obligee�) and consumers against financial losses resulting from the fraudulent or otherwise unlawful or unethical business practices of the principal. The bond ensures that funds will be available to compensate any injured party that files a valid claim against the collection agency bond.
How Does It Work?
The terms of a surety bond identify the actions that would constitute a violation of the surety bond agreement, which is a legally binding contract between the bond�s obligee, principal, and surety (the company that underwrites and issues the bond). A violation that causes a financial loss gives the injured party the right to file a claim against the collection agency bond.
When a claim is filed, the surety will first make sure that it is a valid one. The principal is obligated by law to pay all valid claims, up to the full required (or penal) amount of the bond. Often, however, to ensure timely compensation of the claimant, the surety will pay the claim up front and then collect reimbursement from the principal. An indemnification cause in the surety bond agreement relieves the surety of any legal responsibility for paying claims, requiring the principal to repay the surety for any such advance payments.
Understanding How the Collection Agency Licensing Process Works
You�ll pay an annual premium that is a small percentage of the total required bond amount. The surety will assign you a premium rate based on your personal credit score and personal and business financials.
If your credit score is outstanding, you�ll pay the lowest possible premium rate, as low as 1%. You should still be able to obtain an Arizona collection agency bond even if your credit is not good, but you will likely pay a higher premium rate.
Get Bonded Today
Call today to discuss your bonding needs, or request an online quote for the bond you�ll need to obtain a new or renewal Arizona collection agency license.