KOPEL: TALK ABOUT WINDFALL PROFITS!
Surety bond profiteers may lobby for renewed opportunities in Colorado
Will the Legislature reinstate an outrageous money grab?
Here’s background on surety bonding for Colorado notaries public. The state law requiring notaries public to have surety bonding was repealed in 1992. However, there’s a chance surety bonding will be lobbied back into existence by the bonding industry when the 2009 Legislature considers the Department of Regulatory Agencies (DORA) Sunset review of the law regulating notaries public.
In 1981, the Legislature increased the four-year surety bond required for a notary public commission from $1,000 to $5,000. The $1,000 amount had been the law from 1908 (if not earlier) through 1980.
From 1981 through 1990, the notary surety industry took in $5,734,021 as Colorado premiums, according to their figures. The industry paid out $106,644 for damage claims for a 2 percent loss ratio.
The DORA research staff uncovered the notary surety industry’s huge profit margin — which I consider to be a scam — when it prepared the Notary Public 1991 Sunset review for the Legislature to consider in 1992. At that time, the reasonable loss ratio (claims paid out) suggested by insurance commissioners was 40 percent.
Actually, Colorado’s payment to victims was greater than the payments being made in the rest of the country. In 1990, the surety industry released figures showing $17,825,344 in direct premiums earned, with $288,071 in claims paid — for a loss ratio of 1.6 percent.
Talk about windfall profits!
How much did the surety bond cost a Colorado notary public? According to a 1991 National Notary Association position paper: “A $5,000 bond ... costs a Colorado notary $50 or less, with some bonding agents charging premiums as low as $25.”
In 1991, however, the Colorado Department of State’s notary licensing director disagreed, stating that the average cost was $50, with prices ranging from $35 to $80.
DORA’s 1991 Sunset report recommended that the $5,000 surety bond be repealed based on the small numbers of claims and repaid losses.
Since the bond requirement was repealed in 1992, why this column?
In 2008, the state auditor outsourced a performance review of the notary public law to Clifton Gunderson LLP, a Greenwood Village certified public accountancy firm.
Although the report mentioned the 1992 surety bond repeal, it provided the reader with NO INFORMATION on the reasoning behind the removal of the bond from the law. And, thanks to term limits, no one presently serving in the Legislature has any reason to know the background.
The Gunderson staffer recommended that the Legislature consider the Model Notary Act of 2002, which, among other suggestions, requires a $25,000 surety bond.
DORA’s review found 110,000 new and reappointed notaries public presently active, with an average of 27,000 to 28,000 commissioned in each yearly cycle. DORA did not recommend reinstating a surety bond requirement finding “a manual sifting of complaints filed ... did not provide justification for recommendation...”
The Gunderson staffer also recognized the vagueness of record-keeping by the secretary of state. The review showed that 149 complaints filed in fiscal years 2006 and 2007 resulted in the revocation of four notary commissions, two suspensions and two resignations.
Neither Gunderson nor DORA mentioned that bonding companies, by law, can recover the full amount of a monetary loss from the notary public who causes it. This further reduces the percent of claims paid out compared to the profit figures. Small claims courts can award up to $7,500 in damages, and the plaintiff doesn’t even have to hire an attorney to win satisfaction.
DORA and Gunderson did agree on other recommendations, calling for notaries public to continue to be commissioned, since they must usually be involved in real estate transactions. They also agreed that the record-keeping system for complaints should be improved and that notaries public should maintain accurate journals on each of their transactions, not just real estate transactions.
For many notaries, DORA reminds us “a commission is simply an adjunct to their other job duties” but “there are certain occupations in which holding a notary commission is an essential requirement.”
However, that’s no reason for the state to use a statute to pick their pockets.
Jerry Kopel served 22 years in the Colorado House.