Don’t let dealer surety bond trouble bring business to a screeching halt.
Most car dealership insurance policies are put in place to protect the seller, but a dealer surety bond works differently. While it’s possible to obtain surety bonds through insurance agents, they’re not recognized as insurance policies, and they’re not used for a car dealer’s security. They’re legal contracts that outline an agreement between the dealer and its consumers and are monitored by the bond issuer. Its primary functions are to protect consumers, financial institutions, and dealer related government agencies from incurring a financial loss due to fraudulent business practices.
Here are some of the most common examples of fraudulent dealer business practices that a dealer surety bond will protect consumers from:
- Failure to report a sale to the proper agencies.
- Selling vehicles with tampered odometers.
- Failure to provide vehicle titles to consumers.
- Selling stolen cars.
- Finance and warranty fraud.
An expired dealer surety bond can make it impossible to fight consumer claims, even if they’re false.
When a consumer complaint is filed and approved, the surety bond company is the one who reimburses the consumer or agency. They will also provide legal representation if a dealer feels the allegations are false. Failure to renew is not only more expensive in the long run, but it also reflects poorly on the dealership, and gives the consumer a much better chance at winning a lawsuit. Strong legal representation is crucial because once a complaint has been filed a dealer is considered unbondable until the claim is settled. Without a valid surety bond, your dealer license is in jeopardy of getting revoked.
Make the time to stay educated to maintain bond compliance.
Dealer surety bonds are required to secure a dealer license in almost all 50 states. Not only are dealer licenses necessary to sell cars legally, but many agencies will request a current copy throughout the year for several reasons. Financial institutions and auto auctions require them, and the DMV also needs copies when auto dealers register vehicles on site or need to renew their dealer license plates.
Each state has their own set of rules when it comes to dealer surety bonds, so be sure to talk to your insurance agent and state dealer licensing agency. They can clarify any questions you may have regarding the type of bond you need and what your state’s coverage guidelines are. It’s better to know all the facts so when it comes time to renew, you’re confident and compliant.
Set expiration date reminders to avoid a lapse in coverage.
Like most insurance policies, a dealer surety bond has an annual expiration date. Car dealerships in some states follow a fixed expiration date, while others expire a year from the date of issue. Agencies will usually send reminders before a policy lapses, but it’s still smart to put safeguards in place to prevent lack of coverage. It’s a good idea to start the renewal process at least 90 days before the expiration date to give you time to address any issues you may have. Also, set reminders for 30 and 60 days to ensure your renewal process is on schedule.
A better credit score means lower premiums.
The cost of a dealer surety bond isn’t just affected by the amount of coverage required, a dealer’s credit score can also have a substantial impact. Dealerships with excellent credit scores may only need to make an annual payment of 1% of the total bond amount whereas a poor credit rating can increase that percentage to 5% or more. The only thing worse than higher premiums is the chance of getting denied altogether which is possible when most agents use a dealer’s credit score to help gauge risk.
Before renewing a surety bond, talk to your insurance representative or state licensing agency about the following components:
- What is the minimum bond amount required by your state?
- How will your credit score influence your annual premium?
- What processes does your agent have in place for settling consumer complaints?
Keep in mind that any reputable agent should be happy to answer any questions you have to make sure you have the exact coverage that’s required. Any time a surety bond agent is hesitant to help, take that as a hint to find someone more trustworthy.
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