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Motor Vehicle Dealer Bonds Explained

Being a motor vehicle dealer is a huge responsibility and requires complete trust from all parties. Customers have faith that the dealer has provided nothing but truthful information about the vehicle being sold while sellers and creditors have faith in the dealer’s ability to repay them for inventory and loans. Dealers are trusted by state governments to follow all state laws and pay all necessary taxes in full and on time. A motor vehicle dealer earns the trust of the community, government, and surety industry by guaranteeing that all relevant third parties are safeguarded in the case of a dispute or infringement.

Customers, creditors, and governments are all protected by motor vehicle dealer surety bonds. Most state governments require dealerships to obtain a motor vehicle dealer bond before issuing a dealership license. A motor vehicle dealer bond (also known as an MVD bond, auto dealer bond, car dealer bond, or DMV bond) enlists the help of a surety agency to offer a financial assurance (a surety bond) that the auto dealer will follow legal and ethical guidelines.

What is the purpose of a Motor Vehicle Dealer Bond?

A motor vehicle dealer bond, also known as an auto dealer bond, demonstrates that the car dealer is reliable in terms of pricing, services, and customer and vehicle treatment. A motor vehicle dealer bond will enhance the company’s overall reputation while protecting both the government and customers from any fraudulent activity on behalf of the dealership. If the client believes the motor vehicle dealer has acted unprofessionally or the service performed on the car has put the customer at risk, the customer can file a claim against the bond. The client will be compensated by the surety depending on the motor vehicle bond secured by the owner. It is then the vehicle dealer’s obligation to reimburse the surety for the bond claim. A motor vehicle dealer bond benefits the dealership owner by demonstrating to consumers that the dealership is responsible, liable, and trustworthy. 

Do you need a motor car dealer bond? Make a call to The Surety Place right now!

A surety bond for an auto dealer is a three-party assurance that includes:

Why are motor vehicle dealer bonds required?

MVD Bonds protect customers, simple as that. If a dealership fails to follow all state-regulated laws or commits any fraudulent activities, the Auto Dealer Bond will protect consumers. These activities might include (but are not limited to) the following: 

How Does An MVD Bond Work?

A motor vehicle dealer bond is a type of surety bond. Surety bonds are three-party contracts that ensure that one party (the principal) will follow the laws and ethical norms imposed by another party (the obligee), with the help of a neutral third party (the surety). 

In the case of auto dealer bonds, the principal is the dealer, the obligee is the state government (typically the Department of Motor Vehicles or the Secretary of State), and the surety agency is The Surety Place.

A surety bond, unlike other forms of insurance carried by a vehicle dealer, protects third parties such as consumers and creditors rather than the dealer. A third party can make a claim with the surety who issued the dealer’s bond if they feel the dealer has broken the law or acted unethically. 

A dealer bond generally allows the following parties to bring a claim:

A third party can submit a claim for a variety of reasons, including:

Most states maintain searchable online databases of licensed dealers, allowing anybody to check if a dealer is licensed and bonded before visiting the lot or purchasing a car. Request your bond with The Surety Place and check the states here.

The Claim Settlement Process 

There are several steps to the claims procedure for a motor vehicle dealer bond. A party who has a complaint (the claimant) will often contact the dealer first. The dealer should look into the issue and try to reach an agreement with the claimant. If the claimant and the dealer are unable to come to an agreement that works for both parties, the claimant may approach the surety who issued the dealer’s bond and make a claim against it.

Following the filing of the claim, the surety will contact both the dealer and the claimant to learn more about each party’s version of the story. The surety will next investigate the claim and determine if it is legitimate. If the surety determines that the claim is not legitimate, the investigation will be closed without further action. If the surety determines that the claim is legitimate, the claimant will receive the claim amount up to the bond amount. Any money given out by the surety must be repaid by the dealer.

What Is the Price of a Dealer Surety Bond?

The premium an auto dealer will pay for an MVD surety bond is determined by two primary factors: 

Auto Dealer Bond Amount: Each state requires specific auto dealer bonds to cover a specific amount, known as the “bond penalty.” For a dealership with a strong credit score, the premium (the amount you pay) is established as a percentage of the bond amount, generally 1%-3%. In other circumstances, especially for car dealers with more years in business or a long history of being bonded without claims, the premium might be as little as 1%.

Credit Score: The most important factor in determining the premium a surety will charge a dealer for obtaining a surety bond is the dealer’s credit score. A surety needs to know that the principal has the financial ability to repay any claims and that the principal will act in a way that makes claims less probable in the first place, regardless of which surety bond is being provided or in which state the bond is being issued. As a result, a principal with a credit score of less than 625 would generally pay a greater price for a surety bond than a main with a credit score of more than 625.

Even if you don’t have perfect credit, The Surety Place may help you get a motor vehicle dealer bond. Contact our bond professionals for more information on our entire selection of auto dealer bonds, or request bonds immediately.

November 8th, 2021
Surety Place