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| Montana Administrative Register Notice 6-261 | No. 7 04/16/2021 | |
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BEFORE THECOMMISSIONER OF SECURITIES AND INSURANCE MONTANA STATE AUDITOR
TO: All Concerned Persons
1. On April 30, 2020, the Commissioner of Securities and Insurance, Office of the Montana State Auditor (CSI) published MAR Notice No. 6-261 pertaining to the public hearing on the proposed adoption of the above-stated rules at page 739 of the 2020 Montana Administrative Register, Issue Number 8. On October 23, 2020, CSI published an amended notice of public hearing on the proposed adoption of the above-stated rules at page 1860 of the 2020 Montana Administrative Register, Issue Number 20.
2. CSI has adopted the following rules as proposed: New Rule VI (ARM 6.6.6005) and New Rule VII (ARM 6.6.6006).
3. CSI has adopted the following rules as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
NEW RULE I (ARM 6.6.6001) DEFINITIONS For the purposes of this subchapter, the following terms have the following meanings:
(2) through (7) remain as proposed but are renumbered (1) through (6).
AUTH: 33-1-313, 33-26-108, MCA IMP: 33-26-108, MCA
NEW RULE III (ARM 6.6.6002) BOND INSTRUMENTS (1) remains as proposed. (2) Bail (3) remains as proposed.
AUTH: 33-1-313, 33-26-108, MCA IMP: 33-17-201, 33-26-108, MCA
NEW RULE IV (ARM 6.6.6003) COLLATERAL, TRUST ACCOUNTS, RECORDS OF ARREST AND SURRENDER, LIST OF FORFEITURES, COSTS, NOTICE OF INCARCERATION (1) and (2) remain as proposed. (3) Collateral security must be held and maintained in trust. When collateral security is received in the form of cash, check, or other negotiable instrument, and unless cash collateral is deposited with and held in trust by the commercial bail bond surety insurer, the surety bail insurance producer shall deposit the cash or instrument, within five banking days after receipt, in a trust account in a bank insured by the Federal Deposit Insurance Corporation. The trust account may not contain operating or personal funds. (4) and (5) remain as proposed. (6) If the court exonerates a bail bond (7) remains as proposed. (8) A surety bail insurance producer may bill the principal for actual and reasonable costs, listed in this rule, which the surety bail insurance producer incurs in securing the appearance or arrest of a principal (9) and (10) remain as proposed.
AUTH: 33-1-313, 33-26-108, MCA IMP: 33-17-1001, 33-17-1102, 33-26-108, MCA
NEW RULE V (ARM 6.6.6004) PROHIBITED PRACTICES (1) A surety bail insurance producer may not: (a) through (e) remain as proposed.
(h) remains as proposed but is renumbered (f).
(j) and (k) remain as proposed but are renumbered (g) and (h).
AUTH: 33-1-313, 33-26-108, MCA IMP: 33-17-1001, 33-17-1103, 33-18-210, 33-18-212, 33-26-108, 46-9-401, 46-9-402, 46-9-502, 46-9-503, 46-9-505, 46-9-510, 46-9-511, 46-9-512, MCA
4. CSI has not adopted proposed NEW RULES II and VIII.
5. CSI has thoroughly considered the comments and testimony received. A summary of the comments received and CSI's responses are as follows:
COMMENT #1: Multiple commenters stated that they did not believe the proposed rules, or individual proposed rules, were necessary, or they questioned the need for the proposed rules, or they raised concerns about what they stated was overregulation of the bail bonds industry, but did not provide additional, substantive comment about particular proposed rules.
RESPONSE #1: CSI appreciates the public comment. CSI believes the adoption and implementation of the proposed rules are reasonably necessary. The issues raised by these public comments were not specific enough for CSI to provide a specific response. As stated in the authorizing and implementing statutes from the Notice of Public Hearing on Proposed Adoption, MAR Notice No. 6-261 (April 30, 2020), CSI has statutory authority to adopt the proposed rules.
COMMENT #2: Multiple commenters stated that they believed the proposed rules are in conflict with statutes or case law but did not provide a legal citation for their belief.
RESPONSE #2: CSI appreciates the public comment. The issues raised by these public comments were not specific enough for CSI to provide a specific response. As stated in the authorizing and implementing statutes from the Notice of Public Hearing on Proposed Adoption, MAR Notice No. 6-261 (April 30, 2020), CSI has statutory authority to adopt the proposed rules. CSI notes that it does address comments that provided a specific legal citation for consideration.
COMMENT #3: One commenter stated their belief that the proposed changes should be made through the legislative process rather than the rulemaking process.
RESPONSE #3: CSI appreciates the public comment. As stated in the authorizing and implementing statutes from the Notice of Public Hearing on Proposed Adoption, MAR Notice No. 6-261 (April 30, 2020), the Montana Legislature has delegated to CSI statutory authority to adopt the proposed rules. Administrative rules provide important support for statutes. For example, although current Montana statutes address the surety process, the Legislature also authorized CSI to adopt rules that detail and clarify that process. The proposed rules address questions and issues CSI has received from the public, including courts, detention facilities, and surety bail clients.
COMMENT #4: One commenter stated that CSI should explain its authority to override a sitting judge's order on conditions of bond.
RESPONSE #4: CSI appreciates the public comment. The proposed rules do not address a judicial order on the conditions of a bond. As stated in the authorizing and implementing statutes from the Notice of Public Hearing on Proposed Adoption, MAR Notice No. 6-261 (April 30, 2020), the Montana Legislature has delegated to CSI statutory authority to adopt the proposed rules.
COMMENT #5: Multiple commenters stated that CSI should meet with bail bonds industry members and discuss the industry, its concerns, and its ideas for addressing CSI's concerns before drafting proposed rules for the industry. Multiple commenters stated that CSI should hold an informal conference pursuant to 2-4-304, MCA, before continuing the rulemaking process.
RESPONSE #5: CSI appreciates the public comment. The current administrative rulemaking proposal is the culmination of a process that began many years ago. Before, during, and after initially proposing rulemaking in 2015, CSI solicited input from stakeholders, communicated proposed rule options to licensees and insurance carriers, and listened to the input it received. CSI received valuable input from, among others, members of the surety industry, courthouse personnel, and members of the public, including complaints about the industry or producers. CSI revised some of provisions between the 2015 and the 2020 rulemaking proposals. CSI also received input from bail bond industry members and members of the public for the current rulemaking proposal, including at the hearing and through the comment period and extended comment period. CSI is confident the topic has been thoroughly reviewed and that the variety of input has been considered, without the need for an informal conference pursuant to 2-4-304, MCA.
COMMENT #6: One commenter stated that they have suggested since 2015 that CSI should discuss the drafting of proposed rules with the bail bonds industry members, the courts, and the jails and that 90-95% of industry members' businesses will be ruled out by the proposed rules.
RESPONSE #6: CSI appreciates the public comment. Please see the response to the previous public comment. CSI is unable to address the assertion that members of the bail bonds industry would be "ruled out" because no specific information has been provided demonstrating that a license or licensee would be ruled out.
COMMENT #7: One commenter stated that most of the same rules were proposed in 2015 and were not adopted, and the commenter questioned what changed and where the public information is regarding what changed.
RESPONSE #7: CSI appreciates the public comment. The 2015 rulemaking proposals were not finalized and adopted within the timeframe required to do so. That decision was not because there was a lack of need for the rules, but rather because CSI has considered revisions to the rulemaking proposal since 2015 and CSI has continued to receive comments about the bail bond industry. CSI has not prepared a comparison of the language used in the 2015 rulemaking proposal and the language used in the 2020 rulemaking proposal. However, the exact language in each rulemaking proposal is publicly available at www.mtrules.org by searching for MAR Notice No. 6-207 for the 2015 proposal and MAR Notice No. 6-261 for the 2020 proposal.
COMMENT #8: Multiple commenters stated that CSI should postpone adoption of the proposed rules until an in-person hearing can be held on the proposed rules.
RESPONSE #8: CSI appreciates the public comment. CSI held a public hearing on May 28, 2020, via the electronic Zoom platform during which members of the public participated and provided public comment on the rulemaking proposal. CSI is unaware of any requirement that the hearing be held in-person, and in light of the Covid-19 pandemic and the Governor's state of emergency declaration and related orders, it was reasonable to hold an electronic meeting rather than an in-person meeting.
COMMENT #9: One commenter stated that the rulemaking hearing held via Zoom did not meet the requirement in 2-3-111(2), MCA, for being held in an accessible facility.
RESPONSE #9: CSI appreciates the public comment. The requirement in 2-3-111(2), MCA, for use of an accessible facility applies when the public hearing "directly impacts a specific community or area." The proposed rules have statewide application, rather than being geographically directed, and as a result that requirement in 2-3-111(2), MCA, did not apply to the rulemaking hearing.
COMMENT #10: Multiple commenters stated that the rulemaking hearing held via Zoom did not allow members of the public to fully participate in the hearing, such as limiting the ability to raise their hands, to comment if not specifically invited to the meeting, or to offer comments or questions when invited to at the beginning and end of the meeting. One commenter stated that the public chat and hand raise features available within the Zoom platform were disabled.
RESPONSE #10: CSI appreciates the public comment. The interactive features at the Zoom meeting were equally available to all members of the public attending the meeting. Public comment at the hearing was provided by a number of different members of the public through the Zoom platform's interactive features. CSI does not know whether an individual's computer settings may have affected that individual's ability to use, or understanding of how to use, the Zoom features. CSI notes that written public comment also was received from members of the public independently of whether those individuals attended the public hearing.
COMMENT #11: Multiple commenters requested that a workshop or other training opportunity be provided by CSI so that bail bond industry members can become familiar with the rules and how to implement them.
RESPONSE #11: CSI appreciates the public comment. CSI will look at ways to communicate these changes. Each renewal cycle, Montana licensees are required to take a Montana legislative changes course. That course addresses changes to both statutes and administrative rules. CSI develops a course after each legislative session, which is available to continuing education providers. The training requested by the commenter may be one option to fill this training need.
COMMENT #12: One commenter stated that the proposed rules were reactionary based on complaints CSI has received.
RESPONSE #12: CSI appreciates the public comment. Public input over time, including complaints that CSI has received, helped identify issues with or concerns about the bail bond industry that the proposed rules are designed to address.
COMMENT #13: Multiple commenters stated that they have seen no evidence of requests to regulate the bail bonds industry.
RESPONSE #13: CSI appreciates the public comment. As a regulator and consumer protection agency, CSI hears from both consumers and the bail bonds industry. As stated in the REASON section of the rulemaking proposal notice, "In 2003, the legislature granted the commissioner rulemaking authority for surety insurance producers who sell, solicit, or negotiate commercial bail bonds pursuant to 33-26-108, MCA." The commissioner has received consumer complaints, and is aware of incidents, indicating the need for regulation of surety bail insurance producers. Additionally, the commissioner has received requests for regulation from members of the industry seeking specific rules in order to give guidance to the industry, to proscribe against certain conduct, to prevent abuse against consumers, and to level the field in order to prevent unfair methods of competition. CSI has received requests from both the courts and detention facilities for clarification regarding surety bail activity. CSI also has received calls from surety bail producers about the activity or behavior of other surety bail producers. The recurrence of the complaints and requests, as well as the Legislature's delegation of rulemaking authority, establish a basis for the rulemaking.
COMMENT #14: One commenter stated that CSI did not provide examples of the need for the proposed rules, even when a public records request was submitted.
RESPONSE #14: CSI appreciates the public comment. The public records request received prior to the hearing could not reasonably have been provided prior to that hearing, but the public records were provided after the public comment period closed. CSI amended the rulemaking proposal notice to provide additional time for public comment after the original public comment period had ended. During that extended period, CSI received additional public comment, including from the commenter.
COMMENT #15: One commenter stated that CSI records show that it received 22 complaints over 4 years and that the complaints are miniscule compared to the thousands of bail bonds executed all over Montana every year. Another commenter stated that the 22 complaints regarded only 12 separate bail bond companies even though 53 bail bond companies are listed as active on the Secretary of State's website. Both commenters stated that the proposed rules are directed at the entire industry rather than the companies of concern.
RESPONSE #15: CSI appreciates the public comment. In addition to formal complaints consumers have submitted to CSI, CSI also is aware of incidents that indicate the need for regulation of surety bail insurance producers and has received requests for regulation from members of the industry. As stated in the REASON section of the rulemaking notice proposal, the proposed rules are industry-wide to give guidance to the industry, to proscribe against certain conduct, to prevent abuse against consumers, and to level the field in order to prevent unfair methods of competition.
COMMENT #16: One commenter stated that limiting arrest power is good and that they support the proposed rules.
RESPONSE #16: CSI appreciates the public comment and the support for the proposed rules. The proposed rules protect both consumers and members of the bail bond industry.
COMMENT #17: Multiple commenters stated that the definition of "90-day surety arrest period" in proposed NEW RULE I is contrary to 46-9-510, MCA, because they believe the proposal would limit the ability to arrest and surrender the defendant prior to an order of forfeiture. Multiple commenters stated regarding the "90-day surety arrest period" defined in proposed NEW RULE I and regarding the 90-day period referenced in other proposed rules that if the principal is fleeing the jurisdiction in which the court ordered them not to leave, the producer must have the right to arrest the principal. One commenter stated that the definition of "90-day surety arrest period" in proposed NEW RULE I is contrary to both 46-9-401(3) and 46-9-510, MCA. One commenter stated that the definition of "90-day surety arrest period" in proposed NEW RULE I should be removed because there are legitimate reasons for re-arrest and surrender of the principal when the risk to the producer has changed; the commenter further stated that the proposed definition would invalidate most indemnification agreements because it would excuse fraud, willful breach of release conditions, and loss of an indemnitor. One commenter stated that the definition of "90-day surety arrest period" in proposed NEW RULE I does not take into account that an order of forfeiture must be issued within 10 days of failure to appear. One commenter stated that the definition of "90-day surety arrest period" in proposed NEW RULE I is an attempt to override the courts' authority over the producer's duty to the court.
RESPONSE #17: CSI appreciates the public comment. In adopting the proposed rules, CSI has removed the definition of "90-day surety arrest period" from proposed NEW RULE I and removed related provisions from proposed NEW RULES IV and V.
COMMENT #18: One commenter stated that the definition of "Premium" in proposed NEW RULE I should be simplified to cash, check, or credit card.
RESPONSE #18: CSI appreciates the public comment. "Premium" is defined in 33-15-102(2), MCA, as, "the consideration for insurance, by whatever name called. Any assessment or membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract is deemed part of the premium." The commenter's proposed change would be contrary to this statutory definition of "premium."
COMMENT #19: One commenter stated that the definition of "Principal" in proposed NEW RULE I should be removed and that a definition of "Defendant" should instead be included, but that defining a defendant as a principal was problematic. Another commenter stated that the definition of "Principal" should be changed to "Indemnitor," "Depositor," or, in relation to premium and collateral, "Principal/Indemnitor" to distinguish between the parties in the transaction. The commenter further stated that a producer's remedy should apply to the indemnitor, not the principal, when seeking reimbursement of costs incurred by the defendant's failure to appear.
RESPONSE #19: CSI appreciates the public comment. While the proposed rules are specific to surety bail bonds, not all bonds include a defendant. Surety bail terms involve the principal, the obligee, and the surety. Surety bonds are a promise by a surety company to pay a first party if a second party fails to meet its obligations. The three parties involved are: the principal (the person who must make good on an obligation), the obligee (the person who needs a guarantee that the principal will perform), and the surety (the issuer of the surety bond guaranteeing that the principal will meet its obligation). These terms are commonly used for bond transactions, and CSI believes the better approach is to use commonly used terms.
COMMENT #20: One commenter stated that the definition of "Surety bail insurance producer" in proposed NEW RULE I should address who can or cannot be licensed, such as felons on active probation because interaction with other felons is a violation of probation.
RESPONSE #20: CSI appreciates the public comment. Licensing of producers generally is addressed in Title 33, chapter 17, MCA, and licensing of felons is specifically addressed in 33-17-1001(1)(e), MCA. The proposed rules do not change those statutory licensing provisions.
COMMENT #21: One commenter stated regarding proposed NEW RULE II that there is no reason producers should be bonded. Multiple commenters stated regarding proposed NEW RULE II that a $25,000 bond is unreasonably high. One commenter stated that the bond should be $10,000. One commenter stated that a producer who violates state law or regulations should be responsible for any fine or for restitution, and that the surety should not be responsible. One commenter stated that the broad liability against the bond for violation of any statute or rule is prohibitive and should be limited to either consumer fraud for defined, prohibited practices. Multiple commenters stated that no other insurance producers have to maintain a bond. Multiple commenters stated that a bond is unnecessary because there are civil remedies available if a producer makes a mistake. One commenter stated that a bond was unnecessary because producers are already covered by their surety insurers for liabilities and losses.
RESPONSE #21: CSI appreciates the public comment. In adopting the proposed rules, CSI is not adopting proposed NEW RULE II regarding a surety bond for the producer and proposed NEW RULE VIII regarding the form for a surety bond for the producer. CSI will monitor the need for future rulemaking regarding a surety bond for the producer.
COMMENT #22: One commenter stated that there are insufficient educational opportunities from CSI to assist potential producers in their preparations for the licensing exam.
RESPONSE #22: CSI appreciates the public comment. Montana insurance exams are currently administered by Pearson Vue. The Montana Pearson Vue website provides a detailed exam outline for each exam offered. This outline provides topic details and lists what Montana statutes are covered on the exam. Please see the Montana Pearson Vue website for more details. Surety companies are also required to ensure any appointed surety bail producers are properly trained and educated on their company products.
COMMENT #23: One commenter stated that proposed NEW RULE III was unnecessary because the bond is a monetary obligation between the court and the surety.
RESPONSE #23: CSI appreciates the public comment. As stated in the REASON section of the rulemaking proposal notice, "NEW RULE III is proposed to be adopted in order to prohibit the signing of blank bail bonds and the utilization of unlicensed surety bail insurance producers. The proposed rule is reasonably necessary to prevent the illegal utilization of unlicensed surety bail insurance producers."
COMMENT #24: One commenter stated that proposed NEW RULE III is unnecessary because there already are criminal penalties when an unlicensed individual produces bonds.
RESPONSE #24: CSI appreciates the public comment. While CSI agrees that there are criminal penalties for transacting insurance business without a license, it can be difficult in surety bail transactions to determine who is the licensed producer. The proposed rule specifically addressed occurrences of this behavior in the Montana surety bail industry. For example, the proposed rule clarified and expanded existing licensing requirements by prohibiting a producer from allowing others to transact business using the producer's license or signature. The proposed rule would protect both consumers and surety bail producers who follow the law.
COMMENT #25: Multiple commenters stated that the requirement in proposed NEW RULE III(2) that the principal sign the bond is not possible in most jails and is impossible when a bond is posted at one jail to be transmitted to another jail for an inmate in another jurisdiction.
RESPONSE #25: CSI appreciates the public comment. CSI agrees with the commenter that proposed NEW RULE III(2) is unclear and believes it should be revised to clarify that the principal signs the bail bond application, not the bail bond. The rule as adopted reflects the revision.
COMMENT #26: One commenter, who works at a detention facility, stated that their workplace is very busy and if proposed NEW RULE III(2) resulted in detention facility employees collecting signatures it would both increase their workload and result in those employees acting as surety agents. Another commenter stated that the proposed rule would result in detention facility employees acting as surety agents.
RESPONSE #26: CSI appreciates the public comment. Under the proposed rule, detention facility employees who collect signatures would be acting as couriers, not surety agents.
COMMENT #27: Multiple commenters stated that the signature requirement in proposed NEW RULE III(2) would limit or eliminate access to bonding services, or increase bonding costs for travel expenses, in rural areas.
RESPONSE #27: CSI appreciates the public comment. The proposed rules are designed to provide recordkeeping requirements that are similar to the requirements for other insurance producers. The signature requirement would provide consistency across Montana and across insurance producers, as would the requirement that the principal receive copies of all related paperwork. On a regular basis CSI receives complaints that the principal has not received copies of, for example, the bond application, the collateral description, or the payment arrangement. The commenter does not provide information demonstrating that the proposed rule would limit or eliminate access to bonding services, or increase bonding costs for travel expenses, in rural areas.
COMMENT #28: One commenter stated that requiring a signature by the principal was inconvenient, was time consuming, and would result in small bonds not being worth the additional steps, which would lead to an increase in the already overcrowded prison population.
RESPONSE #28: CSI appreciates the public comment. Although the proposed rules would provide consistency and predictability for both consumers and the bail bond industry, producers would determine whether any particular bail bond was "worth the additional steps" on a case-by-case basis.
COMMENT #29: One commenter stated that the requirement in proposed NEW RULE III(2) that the principal be given a copy of the bond would result in increased fraud by principals who copy bonds and powers of attorney to bail out other inmates. The commenter recommended that because the contract is between the signer and the producer, only the detention facility or court should have a copy, not the principal.
RESPONSE #29: CSI appreciates the public comment. Industry documentation and blank forms are already available to the public. As these documents are already publicly available, providing copies of those documents to the principal does not perpetrate fraud. CSI continues to believe the principal should have a copy of the contract.
COMMENT #30: One commenter stated that proposed NEW RULE III(3) is unclear because it does not indicate whether the three-year period starts when the bond is issued or when the bond is exonerated.
RESPONSE #30: CSI appreciates the public comment. The proposed rule is consistent with 33-17-1101(3), MCA, which requires producers to keep records "for a period of at least 3 years after completion of the respective transactions."
COMMENT #31: One commenter stated that there are five different things included in proposed NEW RULE IV that should be broken down and detailed for the industry.
RESPONSE #31: CSI appreciates the public comment. The commenter does not explain how they believe proposed NEW RULE IV could be structured or detailed differently and, thus, CSI is unable to respond to this comment.
COMMENT #32: One commenter stated that proposed NEW RULE IV is unnecessary because the insurers require the same information as in paragraphs (5) and (7) and can audit and inspect the producers without notice.
RESPONSE #32: CSI appreciates the public comment. CSI agrees that the proposed rule is consistent with current practices and not burdensome for producers to implement. The proposed rule would standardize these practices independent of individual contractual requirements.
COMMENT #33: One commenter stated that the requirement in proposed NEW RULE IV(1) limiting collateral to 250% of the bond amount improperly limits how consumers use their property because it limits the types of property that can be used as collateral based on value.
RESPONSE #33: CSI appreciates the public comment. The proposed rule does not address the type of property that can be used as collateral but, rather, the ratio of the collateral to the bond amount, which must not exceed 250%. The proposed rule also contains flexibility that allows the ratio to exceed 250% when "no other collateral is available."
COMMENT #34: One commenter stated regarding proposed NEW RULE IV(3) that the requirement for cash collateral to be kept in a trust account is commonsense and a necessary regulation.
RESPONSE #34: CSI appreciates the public comment and the support for the proposed rule.
COMMENT #35: One commenter stated regarding proposed NEW RULE IV(3) that many insurers contractually require cash collateral over a certain amount to be deposited with the surety, which would conflict with the proposed rule and arguably is the better practice.
RESPONSE #35: CSI appreciates the public comment. CSI agrees with the commenter that proposed NEW RULE IV(3) should be revised to allow cash collateral to be either deposited in a trust account or deposited with and held in trust by the surety insurer. The rule as adopted reflects the revision.
COMMENT #36: One commenter stated regarding proposed NEW RULE IV(3) that it would be impractical to open hundreds, if not thousands, of collateral accounts for every dollar received.
RESPONSE #36: CSI appreciates the public comment. CSI anticipates that only one trust account would be required for each producer, not separate accounts for each client. Producers must maintain documentation for each transaction.
COMMENT #37: One commenter stated that if the Montana Uniform Commercial Code (UCC) required a signed security agreement, application of that requirement to producers was excessive. The commenter also expressed uncertainty about the requirements of the UCC and how they would apply to different types of collateral.
RESPONSE #37: CSI appreciates the public comment. CSI believes that requiring a signed security agreement is reasonable, not excessive, and does not conflict with the UCC.
COMMENT #38: One commenter stated regarding proposed NEW RULE IV(5) that reasonable notice at a reasonable time for inspection would be less harsh and more consistent with the practice of regulating agencies in other jurisdictions.
RESPONSE #38: CSI appreciates the public comment. CSI believes that inspection of records without notice is reasonable in light of the requirement that records be maintained on an ongoing basis and, therefore, should be available for inspection at all times.
COMMENT #39: One commenter stated that "terms of all commercial bail bond transactions" is not defined in proposed NEW RULE IV(5) and questioned whether maintaining copies of all bail bond agreements and other records would be sufficient.
RESPONSE #39: CSI appreciates the public comment. Although not specifically defined in the rulemaking proposal, "terms of all commercial bail bond transactions" would include all information about the surety transaction. The information would not be limited to copies of bail bond agreements but, rather, would also include bond applications, collateral agreements, collateral inventory, payment records, and any other information related to the surety transaction.
COMMENT #40: Multiple commenters stated that the requirement in proposed NEW RULE IV(6) requiring return of collateral or other security within five days is unreasonable because of the time needed to obtain a certified copy of the bond exoneration, mailing the copy to the surety, and the surety recording the documents to release the lien. One commenter stated that the industry standard is 21 days. Another commenter stated that receipt of the exoneration should be notarized and certified by the clerk of court to comply with a five-day timeline.
RESPONSE #40: CSI appreciates the public comment. The period for return of collateral in the proposed rule provides a reasonable balance between the time the bond is exonerated and the time the collateral is returned. The commenter does not provide information demonstrating that 5 business days provides an unreasonable balance or that 21 days is a recognized standard in the bail bond industry. CSI will monitor the need for future rulemaking regarding return of collateral.
COMMENT #41: One commenter stated they are uncertain what "If the court … pays the premium for the bail bond" means in proposed NEW RULE IV(6) because they are not aware of a situation where the court may pay the premium.
RESPONSE #41: CSI appreciates the public comment. CSI agrees that proposed NEW RULE IV(6) should be revised to eliminate the phrase "or pays the premium for the bail bond" because that phrase is unnecessary. The rule as adopted reflects the revision.
COMMENT #42: One commenter questioned how proposed NEW RULE IV(6) would apply if the collateral were used to secure payment of the premium rather than secure the bond itself.
RESPONSE #42: CSI appreciates the public comment. If the producer and principal (or indemnitor) enter into a payment arrangement that is separate from and independent of the bail bond, that arrangement would require separate terms and documentation. For example, if the producer offered a personal loan to the principal for the premium, that transaction would be separate from the bail bond. Collateral that secures an independent arrangement for a premium payment arrangement may not be the same collateral that is also used to secure the bond itself.
COMMENT #43: One commenter stated that "receipt of written notice of exoneration" in proposed NEW RULE IV(6) is unclear about whether the receipt is from the court or from someone else.
RESPONSE #43: CSI appreciates the public comment. "Receipt of written notice of exoneration" must be from the court issuing the exoneration.
COMMENT #44: One commenter stated that inclusion of "at the principal's address" in proposed NEW RULE IV(6) was unnecessary and that "at the location it was received … or the parties may mutually agree to another location" was sufficient.
RESPONSE #44: CSI appreciates the public comment. The proposed rule provides flexibility for the parties to mutually agree upon another location for return of collateral or other security, but inclusion of the principal's address in the rule establishes a default location in the event that the parties cannot mutually agree.
COMMENT #45: One commenter stated regarding proposed NEW RULE IV(7) that the requirement for maintaining lists of forfeitures and arrests is unnecessary and ridiculous because that information is already contained in public records and most producers already maintain electronic records of that information.
RESPONSE #45: CSI appreciates the public comment. The requirement would standardize the collection of information and allow CSI access to information necessary for reconciliation and verification of accounts when CSI examines a producer's records.
COMMENT #46: One commenter stated they were uncertain regarding whether the lists required by proposed NEW RULE IV(7) can be one list or separate lists.
RESPONSE #46: CSI appreciates the public comment. Although the proposed rule requires a list of forfeitures and a list of arrests and surrenders, the purpose of the rule would be met if a single list were maintained that is or can readily be sorted into the two required lists.
COMMENT #47: One commenter stated that they were uncertain whether the time period in proposed NEW RULE IV(7) is from bond execution or forfeiture.
RESPONSE #47: CSI appreciates the public comment. The proposed rule is consistent with 33-17-1101(3), MCA, which requires producers to keep records "for a period of at least 3 years after completion of the respective transactions."
COMMENT #48: One commenter stated regarding proposed NEW RULE IV(8) that it is unclear whether the costs are those the producer incurs directly or whether they can include fugitive recovery services.
RESPONSE #48: CSI appreciates the public comment. CSI believes the proposed rule is clear but can be amended in the future if additional clarification is needed regarding allowable costs.
COMMENT #49: One commenter stated their support for the implementation of proposed NEW RULE IV(8) and (9).
RESPONSE #49: CSI appreciates the public comment and the support for the proposed rule.
COMMENT #50: One commenter stated regarding proposed NEW RULE IV(9) that it does not make sense to require the producer to pay the forfeiture before they can liquidate collateral because the purpose of the collateral is to pay the forfeiture.
RESPONSE #50: CSI appreciates the public comment. The purpose of collateral is to secure the bond. Until the 90-day forfeiture period has elapsed, the collateral may not be liquidated.
COMMENT #51: One commenter stated that proposed NEW RULE V was so sweeping that it will provide grounds for every bond to obtain relief from forfeiture because the power to arrest, when there is proof that the principal has fled, is still prohibited during the 90-day period, which would create havoc in and undermine the bail system in Montana and render it a virtual nullity.
RESPONSE #51: CSI appreciates the public comment. In adopting the proposed rules, CSI has removed the definition of "90-day surety arrest period" from proposed NEW RULE I and removed related provisions in proposed NEW RULES IV and V.
COMMENT #52: On commenter stated the proposed NEW RULE V(1) could unnecessarily restrict producers from paying a reward to an individual who is currently a principal for information leading to the arrest of another principal who is fleeing or hiding from the producer and law enforcement.
RESPONSE #52: CSI appreciates the public comment. Rebating is generally prohibited in an insurance contract under 33-18-208, MCA.
COMMENT #53: One commenter stated that proposed NEW RULE V(1)(e) would not be needed if only currency were used to pay premiums.
RESPONSE #53: CSI appreciates the public comment. Premium is defined in 33-15-102(2), MCA, as, "the consideration for insurance, by whatever name called. Any assessment or membership, policy, survey, inspection, service, or similar fee or charge in consideration for an insurance contract is deemed part of the premium." The commenter's proposed change would be contrary to this statutory definition of "premium."
COMMENT #54: One commenter stated that proposed NEW RULE V(1)(f) is contrary to 46-9-510, MCA, and Taylor v. Taintor, 83 U.S. 366 (1872).
RESPONSE #54: CSI appreciates the public comment. The commenter has not demonstrated that proposed NEW RULE V(1)(f) is contrary to Taylor v. Taintor, and that case does not appear to be binding precedent that affects CSI's consideration of the proposed rule. However, in adopting the proposed rules, CSI has removed the definition of "90-day surety arrest period" from proposed NEW RULE I and removed related provisions in proposed NEW RULES IV and V, including proposed NEW RULE V(1)(f).
COMMENT #55: One commenter stated that a principal's breach of contract requirements for the principal to keep the producer informed of changes of address, phone number, or employment results in a higher risk of fleeing and that the producer should be allowed to warn the principal of breach of contract or to arrest the principal under proposed NEW RULE V.
RESPONSE #55: CSI appreciates the public comment. Nothing in the proposed rules prohibits a producer from warning a principal about an alleged or anticipated breach of contract requirements.
COMMENT #56: One commenter stated regarding proposed NEW RULE V that the state should have separate licenses for bail producers and bail enforcement agents, that the ability to produce a bond does not necessarily ensure an ability to engage in arrests, and that high training standards for licensing of bail enforcement agents would reduce current issues regarding bail enforcement.
RESPONSE #56: CSI appreciates the public comment. The proposed rules pertain only to surety insurance producers who sell, solicit, or negotiate commercial bail bonds and not to bail enforcement agents, those agents' abilities to engage in arrests, or those agents' training or licensing standards.
COMMENT #57: One commenter stated that the producer is an ally of the court, operates in the best interest of the court by guaranteeing the principal's appearance in court, and must be able to fulfill that obligation to the court, but that proposed NEW RULE V(1)(f) and (g)(vi) tie the hands of producers by limiting their ability to arrest at any time.
RESPONSE #57: CSI appreciates the public comment. In adopting the proposed rules, CSI has removed the definition of "90-day surety arrest period" from proposed NEW RULE I and removed related provisions in proposed NEW RULES IV and V, including proposed NEW RULE V(1)(f). CSI also has removed proposed NEW RULE V(1)(g), including proposed NEW RULE V(1)(g)(vi).
COMMENT #58: One commenter stated that proposed NEW RULE V(1)(g) provides examples of the increased risk to the producer that establishes legitimate reasons for re-arrest and surrender of the principal.
RESPONSE #58: CSI appreciates the public comment. In adopting the proposed rules, CSI has removed proposed NEW RULE V(1)(g).
COMMENT #59: One commenter stated that deferred premium payments, referenced in proposed NEW RULE V(1)(g)(ii), should not be allowed.
RESPONSE #59: CSI appreciates the public comment. Although deferred premium payments are referenced in proposed NEW RULE V(1)(g)(ii), please see the responses below specifically regarding deferred premium payments. In adopting the proposed rules, CSI has removed proposed NEW RULE V(1)(g).
COMMENT #60: Multiple commenters stated that deferred payments are the source of most complaints about the bail bonds industry.
RESPONSE #60: CSI appreciates the public comment. CSI is aware that deferred payments are a source of complaints about the bail bonds industry and has proposed rulemaking regarding deferred payments to give guidance to the industry, to proscribe against certain conduct, to prevent abuse against consumers, and to level the field in order to prevent unfair methods of competition.
COMMENT #61: One commenter stated that proposed NEW RULE VI should require up front payment of the total premium.
RESPONSE #61: CSI appreciates the public comment. The proposed rules would continue to allow deferred payments of premiums while providing reasonable safeguards for both consumers and the bail bonds industry.
COMMENT #62: Multiple commenters stated regarding proposed NEW RULE VI that it is necessary to have rules regarding deferred payments and that financing of bonds with interest should not be allowed. One commenter stated that, at a minimum, producers should not be required to charge interest on a deferred payment. Another commenter stated that deferred payments unnecessarily build debt that could be used for fines, tow bills, and other costs.
RESPONSE #62: CSI appreciates the public comment and support for the rule. The proposed rules are reasonably necessary to provide safeguards for both consumers and the bail bonds industry, including ensuring that the interest rate be contained in the bond agreement.
COMMENT #63: One commenter stated regarding proposed NEW RULE VI that a deferred payment plan should be the same for all producers of no less than 50% down and payment of the balance in 20 days. One commenter stated that time paid bail is needed.
RESPONSE #63: CSI appreciates the public comment. The proposed rules permit flexibility for the deferred payment arrangements but require that those arrangements be contained in the bond agreement.
COMMENT #64: Multiple commenters stated that arrest for failure to pay a premium should be prohibited by rule, or even by statute, and that civil remedies should be addressed in small claims court or district court.
RESPONSE #64: CSI appreciates the public comment and support for the rule. The proposed rules are reasonably necessary to provide safeguards for both consumers and the bail bonds industry. The proposed rules do not address the civil remedies that may be pursued in small claims court or district court.
COMMENT #65: One commenter stated regarding proposed NEW RULE VII that if CSI is seeking uniformity in all forms then it should simply promulgate forms as other states have done, which would reduce minor recordkeeping errors that could result in violations.
RESPONSE #65: CSI appreciates the public comment. CSI will monitor the need for future rulemaking regarding promulgation of forms.
COMMENT #66: One commenter stated that there should be restrictions on the authority of CSI to fine or discipline a licensee to only when there is "actual customer harm" for an egregious recordkeeping violation.
RESPONSE #66: CSI appreciates the public comment. The consistent application of rules and statutes by producers requires that CSI retain the ability to take disciplinary actions against any producer who violates those rules and statutes, rather than being limited to certain violations by producers as described by the commenter.
COMMENT #67: One commenter questioned application of the language "a court claiming against the bond for a violation of the Code or Rules" in proposed NEW RULE VIII and whether it applied in circumstances where a judgment is entered against an agent for violation of rule or statute during the time the bond was in effect, which the commenter believed would be limited to torts and not bail bond forfeitures. Another commenter questioned application of the language, "The aggregate liability of the SURETY may not exceed the amount of this surety bond," in proposed NEW RULE VIII and whether the surety's liability for the agent will not exceed the bond amount irrespective of whether an injured party files a lawsuit naming the surety or files a consumer complaint.
RESPONSE #67: CSI appreciates the public comment. In adopting the proposed rules, CSI is not adopting proposed NEW RULE VIII regarding the form for a surety bond for the producer.
COMMENT #68: One commenter stated that sureties and producers should be allowed to enforce their own conditions of a bond because those conditions may allow a bond to be posted for a defendant by a surety who might not otherwise be willing to post the bond.
RESPONSE #68: CSI appreciates the public comment. The proposed rules would give guidance to the industry, proscribe against certain conduct, prevent abuse against consumers, and level the field in order to prevent unfair methods of competition. The proposed rules also provide flexibility to producers and consumers regarding bail bond arrangements. As long as the conditions of a bond are consistent with the applicable rules and statutes, producers and consumers may negotiate the conditions of a bond.
COMMENT #69: One commenter stated that they believe "bounty hunters" or "fugitive recovery agents" need to be regulated as a separate industry but that CSI does not have authority over that industry and that regulation of that industry should not interfere with the ability of producers to arrest individuals they have on bond.
RESPONSE #69: CSI appreciates the public comment. The proposed rules pertain only to surety insurance producers who sell, solicit, or negotiate commercial bail bonds and not to "bounty hunters" or "fugitive recovery agents," over whom CSI does not have direct regulatory authority.
COMMENT #70: Multiple commenters stated that the proposed rules, if implemented, would make it impossible for sureties and producers to protect their bonds.
RESPONSE #70: CSI appreciates the public comment. The insurance industry has been able to adapt over the years to changes in both state and federal regulations, as well as changes in consumer needs. The proposed rules would provide additional structure to existing statute and protection for both the industry and consumers against bad actors. CSI has received no specific information demonstrating that it would be impossible for sureties and producers to protect their bonds.
COMMENT #71: One commenter stated that they had previously proposed a review board comprised of a CSI representative and senior surety bail agents to administer penalties to bad actors in the bail bond industry.
RESPONSE #71: CSI appreciates the public comment. Although that particular recommendation was not incorporated in the proposed rules, CSI appreciates the commenter's recognition of the importance of disciplinary actions against bad actors in the bail bond industry.
COMMENT #72: One commenter stated that producers should have the opportunity to revoke for a federal charge arrest in case the principal disappears.
RESPONSE #72: CSI appreciates the public comment. The proposed rules apply to all bonds in Montana.
COMMENT #73: One commenter stated that regulation is needed in light of the bail bond industry's work with people with disabilities and low-income people.
RESPONSE #73: CSI appreciates the public comment and the support for the proposed rules. The proposed rules protect both consumers and members of the bail bond industry.
COMMENT #74: One commenter stated that they do not accept cosigners whose only source of income is disability payments, but that a small minority of bail bond industry members do accept cosigners who only have disability income or minimal assets, sometimes on only 5% payment, which is contrary to statute and which is when most of the complaints arise.
RESPONSE #74: CSI appreciates the public comment. The proposed rules protect both consumers and members of the bail bond industry.
COMMENT #75: One commenter questioned where to obtain the small business impact analysis required by 2-4-111, MCA.
RESPONSE #75: CSI appreciates the public comment. The small business impact analysis is available by request to CSI.
/s/ Robert Stutz /s/ Michelle Dietrich Robert Stutz Michelle Dietrich Rule Reviewer Deputy Chief Legal Counsel
Certified to the Secretary of State April 6, 2021.
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