Auto dealer bonds, also called dealer surety bonds or car dealer bonds, are government-required surety bonds that auto dealers must maintain to obtain a dealer license, and must remain active as far as the dealership is in business. Dealer bonds are usually purchased from a Surety Company (like Hudson Insurance, American Contractors Indemnity Company, etc.) and renewed for a fee.
A common misconception about dealer surety bonds is that they are for the protection of the dealership as if it was some type of insurance. The reality is that surety bonds are actually protecting the consumer by making sure the dealership follows honest and appropriate practices.
If a dealership violates certain laws when selling cars, then consumers can file a claim with the surety company. If the surety company determines the claim is true, it could pay the consumer for their losses and will hold the dealership responsible for repaying any losses they incur, including very high attorney’s fees and litigation costs. A consumer could also file a lawsuit against a dealership and also name the bond company as a defendant in the lawsuit.
IMPORTANT~ If a consumer files a claim with your surety company or names the bond company in a lawsuit in which you are also a defendant, make sure to contact the bond company immediately and acknowledge your commitments based on any agreements you have signed with them. DO NOT IGNORE THEIR LETTERS, EMAILS, AND/OR PHONE CALLS!!!
To avoid Motor Vehicle Dealer Bond claims and prevent the revocation of a surety bond which will result in the inability to operate your dealership business, make sure your dealership adheres to all dealer regulations in your state.
Another great way to prevent false claims that can (and probably will) come your way … is to use a Lawsuit Prevention Software such as DealerXT. Let us know if you have any questions, our Dealer Defense Team is always available to assist you.