Minnesota Auto Dealer Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your Minnesota auto dealer bond needs.
What Are They?
Minnesota auto dealer bonds are classified as a type of license and permit bond because they are required as a condition for becoming licensed as an auto dealer in the state. They protect the state and those who do business with a licensed Minnesota motor vehicle dealer against financial losses stemming from the dealer’s malfeasance.
There are two aspects to that protection. First, the bond serves as a dealer’s pledge to comply with the laws and regulations that govern auto trading in Minnesota, which helps prevent unlawful or unethical business practices. Second, a Minnesota auto dealer bond provides a source of funds for compensating those who have a legitimate claim for damages caused by the dealer’s failure to live up to that pledge.
Who Needs Them?
Anyone applying to the Minnesota Department of Public Safety, Driver and Vehicle Services for licensure as a motor vehicle dealer must purchase an auto dealer bond that must be renewed yearly to avoid license revocation. The required bond amount (also known as the bond’s “penal sum”) is $50,000 for dealers selling cars, trucks, and motorcycles but only $5,000 for dealers selling boats, snowmobiles, small trailers, or motorized bicycles. This is the maximum amount that will be paid to a claimant.
Speak with a Surety Bond Professionals agent today to discuss your bonding needs.
How Do They Work?
A Minnesota auto dealer bond is a three-way, legally binding contract involving:
- The Minnesota Department of Public Safety, Driver and Vehicle Services, known as the bond’s “obligee,
- The dealer seeking a new license or renewal license, referred to as the bond’s “principal,” and
- The company or agency guaranteeing the principal’s payment of claims, called the “surety.”
Here’s how the claims process works. Imagine that the dealer violates the terms of the surety bond agreement in a way that causes the obligee or a consumer to experience a financial loss. Some of the more common violations are failing to remit tax payments to the state, altering a title, falsifying odometer readings, or misrepresenting the mechanical condition of a vehicle. The injured party can file a claim against the bond and, if the surety finds that the claim is valid, be compensated for the loss.
Although the surety bond agreement legally obligates the principal to pay all claims that the surety finds to be valid, the principal doesn’t normally pay the claimant directly. As the bond’s guarantor, the surety typically pays any valid claim initially, then collects reimbursement from the principal. If repayment is not forthcoming, the surety can take legal action against the principal.
What Do They Cost?
The annual premium for a Minnesota auto dealer bond is a small percentage of the bond’s penal sum. That percentage is the bond’s premium rate, which the surety sets on a case-by-case basis. The primary consideration in determining what the premium rate will be is the risk involved in paying claims on behalf of the principal. The best predictor of that risk is the principal’s personal credit score.
Someone with a high credit score is likely to reimburse the surety as agreed for claims paid on their behalf and presents a low level of risk. Consequently, the premium rate for that individual will be low, potentially less than 1%. On the flip side, a low credit score suggests a high-risk level and warrants a higher premium rate, perhaps as high as 3%.
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Our surety bond professionals will get you the Minnesota auto dealer bond you need at a competitive rate.