Effective October 2020, Alabama House Bill 393 updates several of the regulations established by the Code of Alabama 1975 pertaining to the motor vehicle dealer license issuance process such as increasing the surety bond requirement and adjusting violation penalties. The changes established by the law are applicable to both new and used motor vehicle dealers, as well as motor vehicle rebuilders and motor vehicle wholesalers or wholesale motor vehicle auctions.
What is AB-393 changing?
AB-393 amends several of the existing requirements for licensees such as the required surety bond amount, the number of plates a dealer may purchase, and the issuance fees to be paid by the dealer per license plate.
- Applicants must submit a license bond of at least $50,000
- Issuance fees for dealer license plates increase from $1.75 to $2
- The number of dealer license plates a licensed new motor vehicle dealer may purchase increases from 25 to 35, while the number of motorcycle plates a licensed new vehicle dealer may purchase decreases from 10 to 5
- License holders are subject to a $500 fine for a first-time violation which increases to $1,000 for any following violations
What is a surety bond for motor vehicle dealers?
A surety bond for motor vehicle dealers is a three-party contract between the dealer (the principal), the licensing authority (the obligee), and the surety company backing the bond. It is a type of coverage required for licensing in Alabama, however, unlike traditional insurance coverage, it is written on behalf of the state and its residents to protect them from financial harm caused by a dealer’s failure to abide by the laws of the state. For example, if a dealer is selling stolen cars resulting in damages to the buyer, a claim may be filed against the dealer up to the full amount of the bond in an effort to recover lost money.
The previous surety bond for new and used dealers, rebuilders, and wholesalers was $25,000, as established by the Code of Alabama 1975. With the enactment of the new law, the bond amount will be determined by the Department of Revenue and must be at least $50,000.
How much will dealer license bonds cost once the law goes into effect?
As is the case with Alabama dealer license bonds today, the exact cost a licensee will pay is subject to underwriting consideration. These bonds are typically approved for 1-3% of the total bond amount, meaning a $25,000 bond usually costs between $250 and $750. However, applicants with lower credit may be quoted at a higher rate.
Although current licensees may be approved for the same rate they currently pay when it comes time to renew their bond, they will almost certainly have to pay a higher actual premium. For example, an applicant who currently pays $250 for their $25,000 may very well be quoted at $500 for a $50,000 bond. Even though the actual cost has doubled, the premium remains at 1% of the total bond amount.
How do I get a new motor vehicle dealer surety bond in Alabama?
If you need a new surety bond to file with the state, you can apply for an Alabama motor vehicle dealer bond online 24/7 or call 1(800)308-4358 to speak with a surety expert about your bonding needs.
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