Alabama Motor Vehicle Dealer Bond

Alabama requires all motor vehicle dealers to obtain a $50,000 surety bond. You pay only a small percentage of this amount as your annual premium, typically ranging from 1% to 10% depending on your credit profile.

Applicants with excellent credit scores (700 or above) receive the best rates, typically between 1% and 3% of the bond amount. Those with good credit (600 to 699) can expect rates between 3% and 5%. Even if your credit score is below 599, you can still get bonded, though your rate will be between 5% and 10% of the bond amount.

The bond amount increased from $25,000 to $50,000 effective October 1, 2020, when Alabama consolidated its previous dealer license categories into a single Master Dealer License.

Getting your Alabama motor vehicle dealer bond is a straightforward process that takes just a few steps:

Step 1: Complete Your Application

Start by filling out a bond application with a licensed surety company. You will need to provide basic information about your dealership, including your business structure, ownership details, and financial information. The surety company will also run a credit check as part of the underwriting process.

Step 2: Receive Your Quote

Once the surety company reviews your application, they will provide you with a quote for your bond premium. This quote will be based on your credit score, business experience, and financial strength. Most applicants receive their quote within one business day, and many receive instant quotes.

Step 3: Purchase Your Bond

After you accept the quote and pay your premium, the surety company will issue your bond on the Alabama Department of Revenue prescribed form (MVT 4-3). You will receive the original bond document, which you must then file with the Alabama Department of Revenue.

Step 4: File Your Bond with Alabama

Mail your completed bond form, including the power of attorney, to:

Alabama Department of Revenue Motor Vehicle Division P.O. Box 327643 Montgomery, AL 36132-7643

The bond must be executed by both you and an authorized surety company. Your dealer license application will not be processed until the bond is properly filed.

Alabama law requires anyone engaged in selling, buying, advertising, exchanging, or negotiating the sale of motor vehicles to obtain a Master Dealer License and file a $50,000 surety bond. Specifically, you need an Alabama motor vehicle dealer bond if you are:
 

• New Motor Vehicle Dealer: Selling new vehicles directly to consumers
• Used Motor Vehicle Dealer: Selling used or pre owned vehicles directly to consumers
• Motor Vehicle Rebuilder: Rebuilding and restoring used vehicles for sale
• Motor Vehicle Wholesaler: Selling vehicles to other licensed dealers
• Motorcycle Dealer: Selling motorcycles to consumers
• Trailer Dealer: Selling trailers to consumers

Master Dealer License

Effective October 1, 2020, Alabama consolidated its previous separate dealer license categories (new, used, wholesale, and rebuilder) into a single Master Dealer License. All dealers must now obtain this Master Dealer License, which allows them to engage in any combination of new, used, wholesale, and rebuilder activities.

Designated Agent Requirement

All Alabama motor vehicle dealers are required by law to become designated agents of the Alabama Department of Revenue. This designation authorizes you to handle title and registration work on behalf of the state. The $50,000 dealer bond satisfies both the dealer license bonding requirement and the designated agent bonding requirement, so you do not need to obtain two separate bonds.

Five Vehicle Threshold

Alabama law presumes you are engaged in the dealer business if you sell, buy, advertise, exchange, or negotiate the sale of five or more motor vehicles for retail during a calendar year. Even if you only sell a few vehicles, you must obtain a Master Dealer License and bond.

When someone believes they have suffered a financial loss due to your actions as a dealer, they can file a claim against your bond. The claim process works as follows:

Investigation Phase

After receiving a claim, the surety company conducts a thorough investigation to determine if the claim is valid. They review all documentation, interview involved parties, and verify that the alleged violation falls within the bond's coverage. Valid claims involve violations of contracts made in connection with vehicle sales or violations of Alabama motor vehicle laws.

Payment Phase

If the claim is validated, the surety company will pay the claimant up to the full amount of your bond ($50,000 maximum). The bond also covers any penalty provisions of the statutes through which you are licensed and any sales tax liability you incur.

Reimbursement Phase

Here is an important aspect of surety bonds: you are ultimately responsible for any claims paid. The surety company pays the claimant on your behalf, but you must reimburse the surety company for the full amount of the claim, plus any investigation costs and legal fees.

Continuing Coverage

Alabama motor vehicle dealer bonds are continuous and must be renewed and extended from time to time to maintain your license. The surety company can terminate coverage by filing written notice with the Alabama Department of Revenue, but liability continues for 60 days after filing the termination notice. If you do not have a replacement bond in place when the termination becomes effective, your dealer license will be suspended.

Alabama motor vehicle dealer licenses expire annually on September 30, regardless of when you initially obtained your license. Your bond must remain active continuously to maintain your license.

Your surety company will contact you before your annual premium payment is due to begin the renewal process. Because bond premiums can change based on your credit and financial situation, your renewal rate may be different from your initial rate.

If your credit score has improved or your business has grown stronger financially, you may qualify for a lower renewal rate. Conversely, if your credit has declined or you have had claims against your bond, your renewal rate may increase.

To avoid any gap in coverage that could result in license suspension, pay your renewal premium on time. Most surety companies send renewal notices 30 to 60 days before the due date.

Beyond the surety bond, you'll need:

• Established place of business in Alabama that meets local zoning requirements (subject to state inspection)
• Blanket motor vehicle liability insurance with minimum coverage of $25,000 per person and $50,000 combined per accident for bodily injury, plus $25,000 property damage, or a $75,000 combined single limit. Lapses incur a $5,000 civil penalty.

Submit your application electronically through the Motor Vehicle License Portal on the Alabama Department of Revenue website. You'll then mail the supporting documents listed on the transmittal sheet, including:

• Completed application
• $50,000 motor vehicle dealer bond (Form MVT 4-3)
• Certificate of blanket liability insurance
• Driver license copies for all owners, partners, officers, and directors
• Business formation documents
• Proof of established place of business
• License fees

The Department reviews applications and runs background checks on all principals before approval.

Do I need separate bonds for my dealer license and designated agent status?

No. The $50,000 motor vehicle dealer bond satisfies both requirements. All Alabama dealers are required to become designated agents of the Alabama Department of Revenue, and the dealer bond fulfills the bonding requirement for both the dealer license and the designated agent designation.

Can I sell vehicles at temporary locations like car shows?

Alabama dealers may conduct off site sales, but you must obtain an Off Site Sales License for each temporary location. The Master Dealer License fee is $125, and each off site location requires an additional $25 fee. Your $50,000 bond covers your main location and any off site locations.

What if someone files a claim based on a misunderstanding rather than actual wrongdoing?

The surety company will conduct a thorough investigation before paying any claim. You will have the opportunity to present your side of the story and provide documentation showing you complied with all requirements. Not all complaints result in valid claims. The surety only pays claims for violations of contracts or Alabama law, not mere disputes or misunderstandings.