Registration service bonds are surety bonds that are required by the California Department of Motor Vehicles (DMV) for any license relating to the processing, ownership transfers, first-time registration and renewals, and other related DMV documents. To better understand why certain businesses are required to have a vehicle registration service bond to offer select services, how this type of bond works, and what they cost—keep reading.
A vehicle registration service bond is a type of surety bond that functions similar to other license and permit bonds that states often require. In the case of a vehicle registration service bond, this bond is required by the California DMV in order to protect themselves. In some cases businesses or individuals may need to hold a vehicle registration service bond if as a part of their business operations they register vehicles with the DMV on behalf of their customers.
What this type of surety bond ensures, is that the business that holds the bond won’t cause any loss to the public or the state due to unethical or unlawful business practices.
Anyone who wants to start a vehicle registration service in California must hold a vehicle registration service bond. The bonding capacity (aka the highest amount someone can claim against the bond) for a vehicle registration service bond in California is $25,000.
There are three parties involved in the creation, maintenance, and execution of a vehicle registration service bond.
First, you have the obligee. This is the party that requires the business or individual to take out a surety bond. In the case of a vehicle registration service bond, this is the state of California. The obligee requires the principal to hold the bond. The principal for a vehicle registration service bond would be a business that wants to offer vehicle registration services. The final party involved plays a very pivotal role—which is the surety. The surety is the company that sells and issues the bond. The surety is also the party who investigates any claims filed against the bond. Once they finish their investigation, if they find the claim to be valid, they will pay out the claim initially. The principal isn’t off the hook here—a surety bond isn’t an insurance policy for the one who holds the bond. While the surety initially pays out the claim, the principal must pay them back for the full claim amount. The principal may even owe the surety fees or interest on top of that claim amount.
Examples of actions that can lead to a claim being filed against the bond include:
Accepting false statements submitted to the registration service (whether this was done knowingly or negligently)
Committing or allowing fraudulent practices to occur
Using a false name
Operating without a license or with a suspended license
It’s in the principal’s best interests to operate in a way that won’t lead to any claims. They can do this by complying with any relevant state laws and the conditions of the license. In the case of a vehicle registration service bond, the obligee would also be the party to file any claims.
How much a vehicle registration service bond costs varies based on a few different factors. To start, you have to look at what the bonding capacity is. The bonding capacity refers to how much the bond is worth and is how much someone can file a claim for. In the state of California, the bonding capacity is $25,000, so no one can file a claim for more than that amount.
Once the bonding capacity is known, the principal will need to pay a small percentage of that amount (this is known as the bond premium) and usually this is about 1% to 5% of the bonding capacity. Many factors go into determining what that percentage should be, such as someone’s industry experience and their business finances. The main factor though is what the applicant’s personal credit score is like. The higher their credit score is, the less they are likely to pay for a vehicle registration service bond.
If you have time, it can be very beneficial to improve your personal credit score before you apply for a vehicle registration service bond. If you already hold a vehicle registration service bond, you can work to improve your credit score before you renew it when the bond term ends to get a more favorable price. You can improve your personal credit score by making consistent on-time payments to your credit accounts, by keeping the amount of the available credit you’re using low, and by paying down existing debt. You can improve your financial life and your potential surety bond premiums all by improving your personal credit score—which isn’t a bad deal in our opinion.