Alabama Doubles the Auto Dealer Bond Requirement

Legislators in Alabama recently amended the licensing process for auto dealers in the state, changing certain criteria and bringing in new types of licenses. The bill was enrolled in May 2019 and is now known as Act No. 2019-244.

House Bill 393 introduces higher surety bond requirements for new and used motor vehicle dealers, as well as for rebuilders and wholesalers. The Alabama auto dealer bond increase doubles the previously required amount of $25,000. Thus, applicants for the listed dealer licenses in the state will need to provide a $50,000 surety bond as part of their licensing procedure. The rule comes into force as of October 1st, 2020. 

In the sections below, you can find the essential details from the new bill that affect your dealership in Alabama.

The changes in House Bill 393

One of the main amendments that House Bill 393 brings is an increase in the surety bond amount that Alabama dealers have to provide to the state Department of Revenue for their licensing. The requirement is now set at $50,000, which can be further increased by the licensing authority if necessary.

The bond serves as a safety mechanism that guarantees auto dealers will follow applicable laws. It is also conditioned on your performance of duties as a designated agent and in terms of your tax liability.

The bill also introduces a new Alabama dealer license type - wholesale motor vehicle auction license. Obtaining it also entails providing a surety bond in that amount. In addition, the new law brings into force a new term - a master regulatory dealer license, which represents the license for a new, used, rebuilder or wholesale dealer. The licensing period for master licenses starts from October 1st of each year.

New violation penalties apply to dealers who fail to obtain a dealer license. The first violation is set at $500, while any further violations are $1,000.

How to meet the bonding requirement

In principle, the purpose of the auto dealer bond is to protect your customers from damages they may suffer due to illegal actions on your side. The bond amount that the Alabama Department of Revenue imposes represents the maximum compensation that harmed parties can seek from you in cases when you have transgressed from your legal obligations.

They can file a claim against your bond to demand fair reimbursement. The surety bond change for auto dealers in Alabama is considerable, and in practice, it doubles the compensation that they can obtain in this way.

In order to get bonded and obtain your state license, you need to cover a small percentage of the required bond amount. The exact bond premium is set on the basis of your personal and business finances. Your surety provider determines it by examining your credit score, as well as company finances and other assets. The stronger these factors are, the lower your bond cost can be.

For applicants with stable finances, the typical bonding rates are between 1% and 5%. Thus, even with the bond increase, your bond cost can be between $500 and $2,500.

Do you have any further questions about the Alabama auto dealer license bond increase? Don’t hesitate to contact our bonding experts at 877.514.5146.