California Motor Vehicle Dealer Bond
The State of California requires that Motor Vehicle Dealers obtain a bond in the amount of $50,000. The bond is only $10,000 for wholesale operations. In general the obligation of the bond is that the Dealers will act in compliance with Section 11700 of the MVD Code. What that really means is that the Dealers will pay for vehicles they purchase, will comply with the California Lemon Law, and that the Dealers will not act in a fraudulent manner.
Section 11711 of the California Motor Vehicle Code specifically grants a priority claim on the Dealer’s surety bond if a person is not paid for a vehicle sold to a dealer. This section has proved to be the largest source of motor vehicle claims and has resulted in much more careful underwriting. If you worked for a vehicle wholesale house you may be willing to extend short-term credit to a dealer with little to no check on credit worthiness because the bond will guarantee that you will be paid for the vehicle up to the penal sum of $50,000. Further, the section states that your claim would take priority over other claims. Therefore, the surety has to be in the position of analyzing the credit worthiness of the dealer since they are by effect are co-signing a loan for the dealer to purchase vehicles. This is a big reason why lesser qualified applicants for the bond can pay as much as $10,000 for the bond or have to post collateral for a portion of the bond. The best qualified applicants can pay as little as $500.00 for their bond. IOA represents over thirty different surety markets and will get the best price for the dealer.
California also requires that the dealers act in a trustworthy manner. When asked the code requires that the dealer disclose that the odometer is accurate, the accident history of the vehicle, and if the vehicle was a prior rental vehicle. For proper disclosure of the deal the consumer has made the code requires that the sales contract specify if your trade in has negative equity and if the purchase monthly payment includes any add-ons. The consumer has the right to personally sign all documents and a right to a Spanish translation if English is not the primary language. Lastly the dealer must disclose if the vehicle was repurchased as a “lemon”.
In most cases this bond is underwritten with a signed application. The rate is credit-driven and varies greatly upon the credit-worthiness of individual applicant. Our markets have rates available as low as 1%.
Link to MVD Code that States the bond Obligation:
Link to Dealer Surety Bond form: