License Bonds, Protecting The Public

License bonds are surety bonds filed with a license to help protect the public. All different types of businesses are required to file license bonds: mortgage brokers, car dealers, contractors, etc. The one thing that they all have in common is that they typically deal directly with the citizens the bond is in place to protect. As a bond producer, I know many of the requirements for a variety of different businesses. I also see first hand when the state fails to properly protect the public by not requiring a bond, or by not requiring large enough of a bond.

I am always pleased to see a government official take action to set a new bond requirement. My satisfaction does not only come from the potential to write more business, but because I know that it is for the public good. How many times have you heard about someone getting a raw deal when buying a car, a home, getting improvements made on a home, etc. It is the government’s job to help protect it’s citizens from harm, including financial loss. A bond guarantees the work of the licensee and will pay out to their clients in the event of a legitimate claim. If a state is going to issue a license to legally operate a business they better make sure there is some sort of financial guarantee to protect the public from fraudulent acts.

You can always visit the Surety Bond Forums: Surety News section for updates on bond requirements across the country. There are a few recent proposals to mention, hopefully other state representatives will follow their lead. Colorado is proposing a $100,000 license bond requirement for mortgage brokers operating in the state. Georgia is considering an increase from $25,000 to $50,000 for their current auto dealer bond requirement. Smaller towns are also taking action to protect their citizens. Asbury Park, NJ is proposing a surety bond to be filed with remodeling contractors licenses.

Many license bond requirements are just too small. As mentioned above, Georgia has recognized their small requirement and are trying to take action. If there is a fraudulent auto dealer, do you think he/she will be crooked on just one auto sale or multiple? How much do you think the average vehicle costs these days? There are many citizens getting hit with large financial losses with a bond requirement of only $25,000. Of coarse the people fighting the act would be the auto dealers. They complain the requirement would put many smaller shops out of business. However, I believe that a bond to protect the public is simply the cost of doing business in that state. If an increased bond amount is going to put you out of business, then you probably would not have been operating for much longer anyhow. Statistically, the business owners that are more financially desperate are also the ones more likely to trigger claims.

License surety bonds are a great instrument to help protect the public from fraud. Our representatives need to wake up and create the requirements where they are lacking and increase the requirements when too small. Their job is to protect the public and a bond requirement is the best way to go about doing so. There will be people opposing new requirements/increases, but that is a cost of business to operate. If you can’t afford to bond your clients, then perhaps you should no longer be in business.


Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog.

3 Comments

Savannah

Hello
My son is a painter contractor (first year lic.) and his bond went from 100.00 a year to 1,300.00 per year because he does not have a credit score. I am looking for different options for him to obtain a bond. Do you have any suggestions. Thanks for your help.

Reply
Larry

The problem is that (especially in California) the Bonding Company is substituting their judgement for that of a court. I potential plaintiff can file a Bond Claim and be paid based on the Bonding Companies judgement without the plaintiff having gone through the traditional Civil system or Mechanics Lien Process which provides the Contractors some protection. I paid a claim that I didn't think I owed to keep the bonding company from paying it.

Reply
Michael Weisbrot

Larry, sorry to hear that you had to pay for a claim that you felt was not legitimate. I am sure you know, it was likely your best option anyhow. The sureties always require all applicants to fully indemnify prior to bond issuance so they would have pursued you for the claim otherwise. Paying it leaves the possibility of being bonded again in the future if you so choose. Not paying it is a sure way to put the biggest roadblock possible between you and future bonds.

It just goes to show how important getting paired up with the proper surety is. If a bonding company's claims department doesn't do their due diligence, errors like this can occur.

Sorry to hear about your troubles! Best of luck.

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