1. Auto dealer bonds reinforce industry regulations.
Since they’re required before auto dealers can apply for their licenses, auto dealer bonds fall into the license and permit surety category. Government agencies that regulate a wide array of industries establish license and permit bond requirements as a way to ensure working professionals follow industry regulations. Surety bonds are also legally binding contracts, so failing to follow industry regulations is much more than just breaking a rule or two; it’s breaking a contract. When surety contracts are broken, bonded professionals face penalties such as fines, license revocation, and even legal action.
2. Surety bonds keep unqualified individuals from working in the market.
Insurance underwriters don’t just issue bonds to anybody who needs one. The application process can be rigorous. Surety bonds function as lines of credit; as such, underwriters intend to limit the likelihood that claims will be made. If an applicant is perceived to be risky, the surety provider might charge a higher premium to offset the increased risk or simply refuse to issue the bond altogether. Individuals who cannot qualify for or afford the surety bonds they need won’t be allowed to apply for their licenses. As such, the application process keeps financially unstable individuals from working in the market.
3. Surety insurance protects against financial loss.
When dealers fail to follow the terms of their bonds, the government wants to ensure harmed consumers will have the ability to collect reparation. Bond funds can be used to reimburse consumers harmed as a result of the negligence, or they can be used to pay for the fines government agencies charge business owners who fail to follow laws. Claims might be made on DMV bonds for a number of reasons, but they all stem from a dealer’s intentional violation of a law relating to the sale, distribution or financing of motor vehicles. At first, having to purchase a surety bond might seem like just another annoyance to auto dealers. However, with a basic understanding of how dealers bonds work, dealers can come to recognize the three key purposes they serve in the market.