An NMLS electronic surety bond (ESB) only differs from a traditional paper surety bond in one respect: the method of delivery. Instead of having to be printed and mailed to the obligee, an ESB is delivered by being uploaded electronically through the NMLS portal.
NMLS stands for the Nationwide Multistate Licensing System (originally known as the Nationwide Mortgage Licensing System & Registry). Created to facilitate state-level management of licensing for the mortgage industry, its purpose has been broadened to include licensing of non-depository financial services companies, such as collection agencies, money transmitters, and non-mortgage lenders.
Existing paper surety bonds are being converted to electronic bonds, and new license bonds in the financial services industry are being issued in ESB form as more and more state agencies are relying on NMLS to efficiently track the fulfillment of surety bond requirements.
Who Needs NMLS Electronic Surety Bonds and Why They Matter
Today, the majority of people seeking licensing in the financial services industry are actually obtaining an NMLS electronic surety bond. The specific type of surety bond you need to obtain (typically a license and permit bond), the required bond amount, and the terms and conditions of the bond are communicated to license applicants at the time of application. You can easily check this map to see whether your state has adopted NMLS ESB and is no longer accepting traditional paper surety bonds. As of this writing, all but 18 states have made the switch.
How Does It Work?
The front-end of the bond issuance process has not changed. A bond applicant still provides the same information to the surety company outside of NMLA. The underwriting process also remains the same. The only real change is that the surety company creates the bond and any riders in NMLS (rather than by filling out paper forms) and submits the bond and any riders to NMLS through the electronic portal.
From a legal standpoint, an ESB and a paper surety bond are identical. They use the same language and create the same legal obligations for each party�the state agency requiring the license bond (the obligee), the financial services industry professional required to obtain the bond as a condition of licensing (the principal), and the company underwriting and issuing the bond (the surety).
What is different is the improved ability of state licensing agencies to coordinate and share information across state lines and with certain federal agencies, which in turn improves their ability to protect consumers.
What Does It Cost?
There is no additional cost to you to obtain an ESB compared to a traditional paper bond. The cost of an ESB is still calculated by the surety as a percentage of the total bond amount required by the obligee.
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