Michigan Collection Agency License: Requirements, Bond, and Renewal

To operate a collection agency in Michigan, you need a license from the Department of Licensing and Regulatory Affairs (LARA) for each physical location, and the Michigan collection agency license requirements set by Article 9 of the Occupational Code (Act 299 of 1980) cover manager qualifications, a surety bond, a segregated trust account, background checks, and a $475 application fee for a three-year license.¹ A companion statute, the Regulation of Collection Practices Act (PA 70 of 1981), sets the conduct rules you’re agreeing to follow once licensed.²

Who Needs the License

If you’re in the business of collecting debts owed to someone else, you need a license before you start, and you need one for each location.¹ The statute is broad, so the important question for most applicants is whether they fall under one of the exemptions.

You do not need a collection agency license if you fit one of these categories:³

A regular employee collecting for a single employer, with all collection efforts made in the employer’s name.
A state or nationally chartered bank, savings and loan, or credit union collecting its own claims.
An attorney handling collections for a client in the attorney’s own name.
A public officer or an individual acting under a court order.

Everyone else who collects third-party debts in Michigan needs the license. Collecting without one is a violation of the Occupational Code.

Qualifying a Manager

Every applicant, partner, and corporate officer connected to the license must be at least 18 and must show good moral character, financial responsibility, and a reputation that inspires community confidence. LARA can request financial statements, references, and identifying information for any partner or shareholder holding 10% or more of the agency’s outstanding shares.¹

The agency also has to designate a qualified manager, which can be the owner. The manager needs three things: at least six months of full-time experience collecting accounts, a high school diploma or GED, and a passing score on Michigan’s Collection Agency Manager Written State Examination.⁴

PSI Services administers the exam. It’s 50 multiple-choice questions on collection agency operations, trade customs and ethics, and Michigan collection law, with a 75-minute time limit and a 70% passing score.⁵ You can’t schedule the exam until LARA authorizes you after reviewing your application, so plan around that wait.

Applying: Fees, Bond, and Documents

Applications go through LARA’s online licensing portal. The fee is $475 for a new three-year license, whether the agency is owner-managed or not.⁴ Along with the fee, you’ll submit:

Proof of a surety or cash bond between $5,000 and $50,000.
Good moral character responses for every individual, partner, or corporate officer on the application.
A community confidence statement covering financial stability, reputation, and experience.
Manager credentials: proof of six months of full-time collection experience, a high school diploma or GED, and a passing exam score.

LARA also runs background checks on all principals, including fingerprinting. Live Scan fingerprinting generally runs $40 to $120 depending on the provider, and it’s paid separately from the application fee. LARA does not publish a fixed processing timeline, and you cannot legally collect debts until the license is issued, so file well before you plan to open.

Surety Bond and Trust Account

The surety or cash bond has to be at least $5,000 and can be required up to $50,000. Consumers harmed by agency misconduct can make claims against it.⁴ The annual premium on a $5,000 bond is modest; larger bonds cost more.

You also need a separate trust account for money collected on behalf of clients. Collected funds must be deposited within three banking days of receipt, and the account has to sit at a state or nationally chartered bank, savings and loan, savings bank, or credit union. Michigan-based agencies must keep the account in Michigan.⁶

The account must be clearly labeled as a trust account and kept apart from personal or general operating accounts. It has to hold enough at all times to cover what the agency owes clients, minus any fees the client owes back. Withdrawals are limited to paying clients what they’re owed and periodically pulling out earned fees.⁶ Commingling and late deposits are common triggers for investigations.

You also have to preserve all books, accounts, and records related to collections and make them available to LARA for at least three years after the final payment entry on any account.⁷ LARA can inspect at any time.

Rules You’re Agreeing to Follow

The license commits you to Michigan’s conduct rules, and some of them go further than the federal Fair Debt Collection Practices Act. Key prohibitions include:⁸

Using an attorney’s letterhead or credit bureau stationery without proper disclosure, or sending forms designed to look like court documents or government notices.
Telling a debtor that nonpayment will lead to arrest, imprisonment, or seizure of property when no legal proceeding supports that claim.
Communicating outside the 8 a.m. to 9 p.m. window unless the debtor agrees in writing to a different schedule.
Disclosing a debtor’s indebtedness to an employer, unless the debtor authorized it in writing after the account was forwarded, the employer initiated the inquiry, or the contact is solely to get location information.
Contacting a debtor directly once you know the name and address of the debtor’s attorney, unless the attorney fails to respond to written contact within 30 days.
Contacting a consumer about a debt by postcard.
Using or threatening to use anyone posing as a peace officer or law enforcement official.

Agencies must also implement internal procedures designed to prevent employees from committing these violations. A written policy alone isn’t enough; LARA expects training and enforcement.

On the federal side, Regulation F under the FDCPA addresses the same core problems and adds its own disclosure requirements. Where state and federal rules overlap, the stricter standard controls.⁹

Validation is a specific licensure obligation worth flagging on its own. Within five days of the first communication with a consumer about a debt, you have to send a written notice with the amount owed, the date, the creditor’s name, and a statement that the consumer has 30 days to dispute in writing. If your initial communication already included all of that, a separate notice isn’t required. If the consumer disputes within 30 days, you have to stop collecting on the disputed amount until you obtain verification and mail a copy to the consumer.¹⁰

Renewal Every Three Years

Michigan collection agency licenses run on a three-year cycle.¹¹ The renewal fee is $375, and you have to submit before your license expires. If it lapses, you may need to go through the full relicensure process at $495 rather than the standard renewal, and you cannot legally collect during the gap.⁴

Renewal takes updated documentation: proof the surety bond is still active, current information on management or ownership changes, and confirmation that managerial staff still meet the experience and qualification requirements. LARA applies the same standards at renewal that it applied at initial licensing.

Penalties for Violations

A consumer harmed by an agency’s unlawful practices can sue for actual damages, with a $50 minimum recovery. If the court finds the violation was willful, the civil penalty is at least three times actual damages or $150, whichever is greater, plus attorney fees and court costs.¹² Attorney fee awards can dwarf the underlying damages when there’s a pattern across multiple consumers.

LARA can also investigate complaints and take action against the license itself, up to suspension or revocation. The Michigan Attorney General’s office has independent authority to investigate and prosecute violations. Consumers can file complaints directly with LARA against any licensed collection agency.¹³ Losing the license ends the business, not just the case.

1
Michigan Legislature. MCL – Section 339.904 – Occupational Code (Excerpt)
2
Michigan Legislature. MCL – Act 70 of 1981
3
Michigan Legislature. MCL – Section 339.901 – Definitions
4
State of Michigan. Collection Agency Owner Managed Licensing Guide
5
Bureau of Professional Licensing. Collection Practices FAQ (PA 299 of 1980)
6
Michigan Legislature. MCL – Section 339.909 – Separate Trust Account; Maintenance by Collection Agency; Designation as Trust Account; Disbursements and Withdrawals
7
Michigan Legislature. MCL – Section 339.910 – Occupational Code
8
Michigan Legislature. Occupational Code (Excerpt) – Article 9
9
eCFR. 12 CFR Part 1006 – Debt Collection Practices (Regulation F)
10
Michigan Legislature. MCL – Section 339.918 – Occupational Code (Excerpt)
11
Cornell Law. Mich Admin Code R 339.1003a – Triennial License Renewal
12
Michigan Legislature. MCL – Section 339.916
13
Licensing and Regulatory Affairs. Collection Practices Regulation