What to know about Alabama’s New Motor Vehicle Surety Requirement

Alabama Motor Vehicle Surety Requirement

Alabama motor vehicle dealers need to be aware of a major change to the state’s surety bond requirement. New rules will affect how much dealers pay to secure and renew a bond they must have in order to legally sell vehicles. More importantly, the changes to the Alabama motor vehicle surety bond requirement will create greater liabilities for dealers should anyone ever file a claim against the bond. The experts at Viking Bond Service are here to show you exactly how these changes affect you, your business, and your surety bond. 

What is a Motor Vehicle Dealer Bond?

It’s worth reviewing how an Alabama motor vehicle surety bond works before describing the new requirements now in effect. Alabama – like all states – requires motor vehicle dealers to have a license in order to run their business legally. As part of the license requirements, dealers must obtain an Alabama motor vehicle surety bond. Failure to obtain a bond makes it impossible to receive a license. Likewise, dealers who let their bond lapse are at risk of losing their license as well. 

This type of surety bond – known as a license bond or commercial bond – holds a motor vehicle dealer accountable if he breaks Alabama state laws applicable to vehicle sales – selling a lemon, for example. Vehicle buyers wronged by a dealer may file a claim against the motor vehicle dealer bond seeking compensation equal to whatever they lost because of the dealer’s illegal behavior.

After receiving a claim, the surety company that issues the bond launches an investigation to determine whether the claim is true. If so, the surety automatically settles the claim in full – guaranteeing that anyone affected by an unlawful vehicle seller can get restitution. After paying, the surety will collect the amount of the claim plus interest and fees from the motor vehicle dealer. The bond agreement holds the principal (the bonded party, in this case the dealer) responsible for all valid claims. 

What are the new requirements of the state of Alabama motor vehicle dealer bond 

Previously, Alabama required all motor vehicle dealers to have a surety bond valued at $25,000 – meaning the surety company that backed the bond agreed to pay up to that amount to settle claims. Beginning October 2020, dealers will need a State of Alabama motor vehicle dealer bond valued at $50,000. Keep in mind that these are minimum amounts. The state assigns bonding requirements on a case by case basis and may require some dealers to have a larger bond. However, all dealers will need twice the bond they had before – which will have long-term implications for their finances we will discuss in the next section. 

How much will the Alabama motor vehicle surety bond cost?

The amount someone pays for a surety bond is a small fraction of the bond’s total value, starting at 1%. That means before the changes to the motor vehicle dealer bond requirement, a dealer paid as little as $250 to meet the state bond requirement. Now that the bond requirement has doubled, the premium has too. Dealers will pay at least $500 to obtain the necessary surety bond, and at least that amount to renew the bond on an annual basis. Exactly how much someone pays depends on their credit, background, and business standing. Premiums for these bonds could cost north of four figures. Dealers will need to plan for the added expense as part of their annual budget. They will also need to make extra effort to prevent any circumstances that could lead to a claim on the bond – which could be as much as $50,000 a dealer must pay back in addition to interest and fees. 

How to apply for an Alabama motor vehicle surety bond

ALL motor vehicle dealers in Alabama will need to apply for a new surety bond to comply with the state’s expanded bonding requirements – even if you have an active bond already. Since an active bond will not cover the amount now required by the state, everyone must seek out a larger bond than they currently have. To apply, dealers will need to complete a standard bond application, submit to a credit check, and supply any additional documentation the surety asks for. This is also an ideal time to explore whether a new bonding provider could offer more competitive rates or superior service. 

Viking Bond Service – Serving All of Alabama

If you’re someone who requires an Alabama motor vehicle dealer bond, you need to act fast to comply with the changes to state law. As a leading surety bond provider, Viking Bond Service is here to help. Speak to one of our bond experts at 1-888-278-7389 to ask questions, or submit them through the contact form on this page. Or get the bonding process started today. Fill out this online bond application, and expect a quote within 24 hours. 

Author: Tammi Langlois

Tammi is a Producer/Fidelity Specialist here at Viking with over 20 years’ experience. She has extensive knowledge and training on all surety bonds from large scale project Payment and Performance bonds to the smallest of permit bonds required by local state and cities/counties as well as all Fidelity/Crime products available. Tammi has worked with and built strong relations with an extensive array of surety representatives over the years.