Is a Dealer�s License Required?
The Louisiana Used Motor Vehicle Commission (LUMVC) licenses and regulates participants in the state�s used motor vehicle industry, including auction dealers who broker and sell used cars to the public, to wholesale dealers, or for salvage.
Is There a Bonding Requirement?
One mandatory step in becoming licensed to auction used cars in Louisiana is to purchase a surety bond in the amount of $50,000 from a surety company licensed to issue bonds in Louisiana.
Auto auction bonds protect the state and consumers from financial loss attributable to the unlawful or unethical actions of a used car auctioneer. For example, claims can be filed against a bond to cover a loss to the LUMVC resulting from nonpayment of taxes or license fees, or loss, damage, or expenses incurred by car buyers due to an auctioneer�s failure to deliver a certificate of title or to remit to LUMVC taxes or registration fees paid by the buyer.
Unlike insurance, which protects the policyholder against financial loss, auto auction bonds provide protection for those who are harmed financially by the bonded auction dealer.
How Do Auto Auction Bonds Work?
All surety bond agreements bring together three parties in a legally binding contract, specifying the legal rights and responsibilities of each party. In the case of an auto auction bond, these parties are:
- The obligee requiring the purchase of the bond (LUMVC)
- The principal purchasing the bond (the auctioneer or auction company)
- The surety underwriting and issuing the bond (the Louisiana-licensed surety bond company)
The terms of the bond specify the laws, regulations, and industry standards the principal must abide by to avoid claims being filed against the bond. When a violation occurs and a claim is filed, the surety will investigate to ensure that the claim is legitimate.
While the principal is legally responsible for paying all valid claims, the surety typically will pay a claim in advance to give the principal time to liquidate assets if necessary. The indemnification clause included in all surety bond contracts requires the principal to reimburse the surety for all claims payments made on the principal�s behalf so that the surety is held �harmless.�
The bond must remain in force and be renewed annually to prevent suspension or revocation of the auction dealer�s license.
What Do They Cost?
Like insurance policies, surety bonds are purchased by paying a premium to the issuing company. The annual premium for an auction bond is a small percentage of the $50,000 required bond amount (also referred to as the bond�s penal amount). While the obligee establishes the bond amount, the surety sets the premium rate on a case-by-case basis, based largely on each applicant�s personal credit score.
Applicants with good credit usually pay the standard market rate of between 1% and 3% of the $50,000 required bond amount, or $500 to $1,500 per year. Applicants with poor credit may still be able to get bonded, but will likely pay a higher premium rate.
Understanding the Costs of Surety Bonds for Auction Licenses
Request an online quote from Single Source Insurance today, or give us a call to discuss your auto auction bonding needs.