Bond Coverage

GUEST EDITORIAL

What is “Bond Coverage” as that term is used in the repossession industry? And who has it?

Allied Finance Adjusters Conference, Inc. has been in business as a trade association for the collateral recovery (repossession) industry since 1936. During the 80 years that the trade association has existed, it has offered many benefits to its members.

However, it was not until the late 1980’s that insurance of any kind even existed in the collateral recovery industry. At that time, “finance adjusters” did not simply pick up collateral, but they were allowed to literally ‘adjust’ loan terms, collect payments, and re-arrange financing to keep a consumer from having collateral repossessed! Banks and other lenders began to ask for some form of protection based upon the fact that industry members were handling multiple thousands of dollars of client-owned cash and property.

Enter… the “Client Protection Bond”. A dishonesty bond, to cover possible criminal activity by those individuals handling other people’s money and property, became a staple in the collateral recovery industry. Each of the five major trade associations for the industry existing at that time, offered its members access to a dishonesty bond under which the repossessor was covered and the client was protected against theft of that cash and/or property.

There was a time, years ago, when these Client Protection Bonds were allowed to be “self-funded”. They were most likely called “Bonds” because the trade associations and others offering this benefit to its members would pool a large amount of money and hold that cash in reserve to reimburse a client’s damages if a member went “out of trust”. Thus, it worked more like a (self-funded) bond than an insurance policy. But this has not been the case, nor the norm in the industry, in years.

Nearly forty years after they first came onto the scene, a “Client Protection Bond” is actually an insurance policy called a “crime policy”, a “dishonesty bond policy”, or a “fidelity policy”. For the names to be self-explanatory, one must recognize that a regular business liability insurance policy that covers a business’ activities in the field, cannot, by definition, cover intentional, criminal acts of the insured. So, in order to fill this gap, the associations that once self-funded “Client Protection Bonds” helped to generate a new type of insurance policy that DOES cover criminal activity. But in order for insurance companies to sell these types of policies, the covered, insured person must pass a criminal background check and exhibit a history of honest business dealings in order to qualify for coverage.

All of the major trade associations in the repossession industry offered access for their members to this type of an insurance policy, and until 2016 it was still called a “Client Protection Bond.” In mid-2016 the Texas Department of Insurance decided to take issue with the use of the term “bond”, as well as with how these types of policies were generally handled in the repossession industry. Other states followed.

Now, in the first quarter of 2018, Allied Finance Adjusters Conference, Inc. is once again on the cutting edge with this issue. Digging in to really understand the objections of the State insurance regulators, the leaders at Allied Finance Adjusters worked with a major insurer to craft an exclusive plan. Members of Allied have access to programs that include a $1m fidelity policy!

Generally speaking, the individuals who own and operate collateral recovery businesses are honest, small-business entrepreneurs who simply need the assistance of a large group of other business owners to obtain access and affordability for these insurance policies. And though repossessors don’t handle client or consumer cash “in trust” these days, industry members do still have (and should continue to have) access to protected consumer information and secured data. Lenders, therefore, still demand some protection against illegal handling of account information—and repossessors still need fidelity coverage. Allied Finance Adjusters has met the need of these small businesses for years and continues to do so today.

By Machelle Morris

About AFA:

Allied Finance Adjusters (AFA) is the largest, not-for-profit, national trade association of certified, insured and CFPB compliant recovery professionals. AFA has lead the industry as the first trade association to offer its members CFPB Training & ongoing continuing education. AFA Members are the most professional in the industry at locating and repossessing collateral on behalf of all lending institutions including, banks, credit unions, financial institutions, rental & leasing companies, buy here pay here, auto, truck and equipment dealerships. All new AFA Members must pass rigorous physical office inspections and background checks. All AFA members are independent professional business operators and are covered by the Hanover $1,000,000 fidelity policy.

For more information please contact our home office (800) 843-1232. “Professionals Hire Professionals”