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Motor vehicle dealer (MVD) bonds are a type of
surety bond required by law to
ensure automotive dealers remain legally compliant. Designed to protect the
general public, consumers can deal with your company knowing that you’re
licensed and following the law.
Like most surety bonds, three parties are
involved in this legal contract:
●
Principal: The automotive dealer that needs
the bond (you)
●
Obligee: The party that requires you to obtain
the bond (typically a government agency)
●
Surety: The company issuing the motor vehicle
surety bond, guaranteeing to the obligee that you comply with all requirements
(Quick
note: Motor vehicle dealer bonds go by many names, including MVD bond, auto
dealer bond, car dealer bond, used car dealer bond, dealer bond, DMV bond, bond
for dealer’s license, and motor vehicle bond. They all reference the same type
of bond.)
A customer purchased a used car from ABC Auto
Dealers. However, the dealer (principal) did not do their due diligence and
test the car for safety before selling it.
Now, let’s say the customer is hospitalized
due to an accident caused by faulty car brakes. The customer files a claim
against your MVD bond. The claim is valid and MVD Bonds, Inc. (surety) issues
reimbursement of $90,000 to cover the customer’s injuries and damages.
When shopping around for MVD bonds, you’ll
want to note the bonding capacity, premium, and term.
●
Bonding capacity: Also called bonding amount,
this is the highest amount an individual can claim if you’re found doing
something you shouldn’t (more on that below). A maximum bonding capacity of
$25,000, for example, would cover up to that amount in losses and damages.
Capacity requirements depend on the state.
●
Bond premium: The cost of purchasing an MVD
bond — typically 1% to 10% of the bond amount.
●
Bond term: How long the MVD bond is active.
For most states, terms are one year and would need to be renewed annually.
As mentioned, an MVD bond isn’t meant to
protect your interests — surety bonds shield your customers from shady business practices, such as:
●
Misrepresenting the condition of
the vehicle
●
Falsifying or omitting details on
the repair/accident history of the vehicle
●
Issuing a fraudulent certificate
of title
●
Failing to pay the required motor
vehicle fees (e.g., title, registration)
●
Selling a car that is clear of the
prior owner’s interest and liens
●
Not following the required tax
laws
●
Selling a stolen vehicle
●
Not fulfilling a warranty
●
Not reporting the sale of a
vehicle
Let’s say you’re accused of doing something
wrong. The claimant (usually the customer) will file a claim against the MVD
bond. The surety will conduct an internal investigation, requesting documents from
you, including signed contracts, receipts, and correspondence between you and
the customer.
If the claim is found false or invalid, you’re
safe.
If the surety discovered the claim is true and
you were acting less than ethical, the surety company will reimburse the
claimant for losses and damages (up to the bonding capacity).
IMPORTANT:
Don’t confuse a surety bond with an insurance policy — you’re still financially liable for
claim-related losses and damages. Any amount the surety company paid to
settle the bond claim is now a debt you owe to the surety company.
So, if the surety reimbursed the customer for
$10,0000, you now owe $10,000 to the surety.
Generally, you can expect to pay 1% to 10% of
the bond amount. The premium is a one-time fee, paid upfront. Dealers with
higher credit scores, extensive business experience, and good financials will
generally qualify for lower premiums.
Bond amounts on a surety bond for a motor
vehicle dealer can range from $10,000 to $300,000 depending on:
●
State
●
Type of dealership (e.g., new and
used dealer, all-terrain vehicle dealer, wholesale dealer)
●
Annual sales volume (e.g., Maine
requires a $25,000 MVD bond if you sell 50 vehicles annually or $75,000 if you
sell 150 vehicles.)
As mentioned, MVD bonds are typically active
for one year, but terms in some states may extend up to three years. When the
bond expires, you can pay another premium to renew the bond.
Listed below are the general bond amount
requirements by state. Keep in mind that these figures are subject to change
and can vary by your county.
Bond Amount |
Term |
|
1 year |
||
1 year |
||
$100,000 |
1 year |
|
$25,000 |
1 year |
|
$50,000 |
1 year |
|
$50,000 |
1 year |
|
$50,000 |
1 year |
|
$25,000 |
1 year |
|
1 year Expires every 4/30 |
||
$35,000 |
2 years |
|
1 year |
||
1 year |
||
1 year |
||
$25,000 |
1 year |
|
1 year |
||
1 year |
||
1 year |
||
1 year |
||
1 year |
||
1 year |
||
$25,000 |
1 year |
|
$10,000 |
1 year |
|
$50,000 |
1 year |
|
$25,000 |
1 year |
|
1 year |
||
1 year |
||
1 year |
||
$100,000 |
1 year |
|
$25,000 |
1 year |
|
$10,000 |
1 year |
|
$50,000 |
1 year |
|
1 year |
||
1 year |
||
1 year |
||
1 year |
||
$25,000 |
1 year |
|
3 years |
||
$20,000 |
1 year |
|
$50,000 |
1 year |
|
1 year |
||
$25,000 |
1 year |
|
2 years |
||
2 years |
||
1 year |
||
1 year |
||
$50,000 |
1 year |
|
$30,000 |
1 year |
|
$25,000 |
1 year |
|
$50,000 |
1 year |
|
$25,000 |
1 year |
Most surety companies will have minimum credit
score and time in business requirements. In some cases, the surety may want to
verify your business financials by requesting tax returns, cash flow history,
and profit and loss statements. The surety may also require that you sign an indemnity agreement — a legally binding
contract that holds you financially responsible for costs that arise from an
MVD bond claim.
Car dealers often secure MVD bonds through
insurance companies or specialized surety bond providers. Many sureties have an
online application process with the following steps:
After receiving your MVD bond, you would need
to file it with the governing agency requiring the bond.
Whichever company you work with, be sure
they’re an experienced surety that can walk you through the bonding process.
They should also understand your unique bonding requirements based on your
company, industry, and location.
Obtaining an MVD bond is easy when applying
with Worldwide Insurance, Inc. Just fill out our initial application form and get an instant quote in minutes.
With rates starting as low as 1%, we issue all types of surety bonds in all 50
states. No credit check required and no obligation.
The state requires MVD bonds to protect
consumers from unethical car dealers. If a customer suffers damages or losses
because the car dealer neglected a regulation, the customer can file a claim
against the bond to get reimbursed.
The cost of auto bonds can vary by the bond
amount, premium, type of dealership, and annual sales volume. Premiums on auto
bonds typically range from 1% to 10%. A 5% premium on a $50,000 MVD bond in
California, for example, would cost $2,500.
Yes, Worldwide Insurance, Inc. works with
thousands of business owners — even those with low credit — to help them meet
their bonding requirements. If you need an auto dealer bond but have bad
credit, we will still work with you.
Visit our list of bonds by
state to get a closer idea of your bonding requirements.
To learn more about surety bonds in general, check out our free surety bond guide.