What is the Purpose of Having a Collection Agency Bond?
The primary job of a collection agency is to collect debts and manage important personal information about the customers and their financial records. Since the job of a collection agency involves high risk, having a surety bond as a guarantee becomes a necessity for all collection agencies. This surety bond, which is also known as Collection Agency Bond is there to enhance the trustworthiness and reliability of the agency being hired to manage a customer’s debt.
In the US, most of the states require these collection agencies to have a collection agency bond before they are issued a license to undertake business in any state. The primary role of these collection agencies is to collect the outstanding debts of the customers and forward the amount to the company they have been hired for. A collection agency bond covers 3 parties including the principal, which is the collection agent or agency that purchases the bond; the Obligee, which is the government agency that requires the bond to be filled; and the surety, which is the insurance company that issues the bond to the principal or the collection agency.
If a collection agency at any point indulges in misappropriation of funds, the Obligee has the right to ask for a reimbursement of the misappropriated funds by filing a claim against the collection agency’s surety bond. If the claim is proved valid, then the Surety or the insurance company will be required to pay the full amount of the bond, which the Surety will then ask for reimbursement from the collection agency afterward.