But what is a surety bond? A basic definition explains that a surety bond is a legally binding contract that ensures a certain task is performed. Similar to other types of insurance, thousands of specific types of bonds exist. When it comes to the auto industry, a specific license and permit surety bond type is used to protect consumers from dealers who might try to take advantage of them. These bond types are commonly known as auto dealer bonds, but they also go by many other names such as DMV bonds, motor vehicle bonds, dealer license bonds or used car dealer bonds, just to name a few. No matter the specific name, all bonds work in the same basic way. Each surety bond that's issued provides a legally binding financial guarantee of a dealer's ability to work according to industry laws and regulations. Three entities are involved with each bond that's issued.
- The dealership or individual auto dealer that purchases the bond is the principal. By purchasing a bond, the principal provides a legally binding promise that they will follow whatever industry regulations the bond form refers to.
- The government agency that requires the bond is the obligee. By requiring the bond, the obligee reinforces industry regulations and protects consumers from financial loss at the hands of unruly dealers.
- The insurance company that underwrites the bond is the surety. By underwriting the bond, the surety provides a financial guarantee that the principal will comply with all regulations according to the bond's terms.
- misrepresented merchandise
- unethical sales tactics used to sell vehicles
- failure to deliver a valid certificate of title
- failure to pay necessary motor vehicle fees
- failure to forward sales tax payments to the state