As of January 1, 2018, home service contract providers in Virginia have been required to comply with a number of new licensing and bonding requirements. Among other things, home service contract providers must now post a surety bond, as well as maintain a funded reserve account.
Read on for an overview of the new requirements!
Home service contract provider licensing
Under the Virginia Home Service Contract Providers Act, applicants for a home service contract provider license will now need to apply at the Virginia Department of Agriculture and Consumer Services (VDACS). To apply for a license, such providers will need to comply with and complete the following requirements:
- Complete and submit a Home Service Contract Providers Registration Application
- Have an audited financial statement performed and attach it to the application
- Create and maintain a funded reserve account (see details below) and post a surety bond
- Post a liability insurance IF the applicant opts to not maintain an account and post a bond
- Pay a $300 application fee
Under the new rules, home service contract provider licenses expire on July 1 and must be renewed before this date. An audited financial statement is due every year as part of the renewal procedure, as is a $300 renewal fee.
Applicants who have so far not applied for a license will need to pay an additional $100 for every 30 days or portion thereof that they are late with their application. A $50 late renewal fee will also be due when providers fail to renew their license before July 1.
Surety bond and funded reserve account requirement
Applicants for a home service contract provider license are given two options to satisfy the financial security requirements of the Home Service Contract Providers Act. They can either maintain a funded reserve account and submit and maintain a surety bond or post a liability insurance.
To satisfy the first option, applicants must maintain an account that covers a minimum of 40% of “gross consideration received, less claims paid, on the sale of the home service contract for all in-force home service contracts sold” in the state of Virginia.
Alongside with the account, applicants must also post a surety bond. Initially, new applicants must post a $10,000 bond. This amount will then be adjusted from time to time by the Commissioner of Agriculture and Consumer Services to cover the current total amount of unexpired home service contracts of the license holder.
The bond amounts set by the Act will be as follows:
- A $40,000 bond will be needed for unexpired contracts from $50,001 to $300,000
- A $65,000 bond will be needed for unexpired contracts from $300,001 to $750,000
- A $90,000 bond will be needed for unexpired contracts from $750,001 or more
The purpose of the bond is to guarantee that home service contract providers will fulfill all their obligations towards purchasers of such contracts. If a provider fails to fulfill their obligations, including if experiencing insolvency or bankruptcy, a claim can be filed against their bond to compensate purchasers for any losses that are due to such failure.
Cost of getting bonded
To get bonded you must pay a bond premium. This cost is determined by the surety you apply with, based on your personal financial details, with credit score being the most important factor. When the surety reviews your application and credit score it sets a rate, a percentage of the total amount of your bond, which is the amount you need to pay.
Typically, the higher your credit score is, the lower the amount you need to pay will be. So, if you need to get a $40,000 bond and are offered a 1% rate, you will need to pay $400 to get bonded.
Get a free quote on your bond by completing our bond application. We will then provide you with the exact rate at which you can get bonded with us. If you have any additional questions about this bond or surety bonds in general, don’t hesitate to give us a call at 866.450.3412.