by Matt Pridemore, Vice President
Each state has the right to enact its own set of collection laws and requirements. For agencies seeking nationwide compliance, this creates a gauntlet of regulations that is not only confusing, but can prove costly if misunderstood or neglected. The complexity of licensing requirements varies significantly from state to state. But broken down at a macro level, an agency must perform certain tasks in order to be licensed in any given state.
- Assign a Registered Agent/Agent of Record - A registered agent is responsible for receiving important legal and tax documents including: notice of litigation (service of process), franchise tax forms and annual report forms. Entities are required to maintain a registered agent in every state in which they obtain a Certificate of Authority.
- Obtain a Certificate of Authority - A certificate of authority is obtained at the Secretary of State level and qualifies you to do business. A certificate of authority is a prerequisite to obtaining a debt collection license.
- Obtain a Collection Agency Bond - Certain states require that agencies obtain a collection agency bond as part of the licensing process. The collection agency bond is designed primarily to protect the creditor. Collection Agencies typically collect monies on a third party basis and are paid a contingent fee based on the monies actually collected. The collection agency bonds can be "called" in the event the agency collects client monies but fails to remit the appropriate funds. Please note that most underwriters will not write bonds for offshore entities without posting some level of collateral. A collection agency bond is a prerequisite to obtaining a debt collection license.
- Obtain a Debt Collection License - Once you have obtained a certificate of authority and a collection agency bond you are ready to apply for a debt collection license in a given state. The information requested in the debt collection license applications vary significantly from state to state but all require some level of corporate information, financial information and personal information on owners and officers of the entity seeking licensure.
- Set up Physical Office/Resident Manager - Certain states require that the collection agency seeking licensure in their sate maintain a physical office in their state. The office is setup and maintained for the purpose of debtors who choose to walk-in payments. It is also the physical location the state will use to conduct audits or investigations. The person designated by the agency to serve as the principal contact for the state licensing division in a state that requires a physical office is referred to as the "Resident Manager". Please note that there are individuals located in all of these states who meet the requirements necessary to represent your agency for a fee much less than the cost of physically setting up an office in that state.
- Obtain Branch Location License - Certain states require that all locations from which debtors are communicated with maintain a separate branch license. The branch license can be as involved as the original debt collection license or as uncomplicated as a letter notifying the appropriate jurisdiction of the branch location. Any communication with a debtor from an unlicensed branch location is unlicensed collection activity - carrying all of the same consequences of unlicensed collection activity both to the agency and the creditors that they represent.
This process can be extremely time-consuming and complex. No two licensing projects are exactly the same but a good benchmark is to allow 120 to 180 days to be fully licensed.
Call us at (770) 587-4595 or email to info@cornerstonesupport.com to discuss the details of your business and see how Cornerstone can support your overall compliance strategy.
