Motor Vehicle Dealer Bonds: Licensing & Consumer Protection

In the automotive industry, dealerships selling motorcycles, motor homes, new cars, or used cars are often required to possess a motor vehicle dealer surety bond (MVD) for licensing. Most states mandate this surety bond, and multiple locations might necessitate separate bonds. 

Assurance and Significance of MVD Bonds

MVD bonds ensure licensed motor vehicle dealerships adhere to state regulations. These bonds offer protection to consumers in case of dealership or employee fraud. Variations in bond forms and language across states and municipalities affect the level of protection provided.

Bond Amount

The bond amount varies by state, typically ranging from $10,000 to $300,000. Certain states establish a fixed limit for all dealers, while others consider the number of vehicles sold for variable limits. The amount of premium due is a percentage of the bond amount.

Appointed insurance agents can find individual bond requirements by signing in to the Hub, Merchants' intuitive and efficient bonding website. Use our Find an Agent tool to locate an experienced insurance agent near you.

Underwriting MVD Bonds

Merchants' underwriting on MVD bonds often requires a signed application, personal and business financial statements, and a credit check. Merchants does not require indemnity signatures for bonds up to $75,000.

For some bonds, aspects such as dealership tenure, cars sold, prior violations or bond claims, financial condition, liability insurance, inventory type, and the number of locations may be considered.

Personal Financial Strength

Merchants adopts a common sense underwriting approach, factoring in personal financial strength along with business financials. Flexibility is exercised in underwriting decisions, accommodating situations where limited business capital might be supplemented by the owner’s personal resources.

Franchise Dealers

Franchise dealers often possess substantial financial strength due to stringent capital requirements for startup. If well-established in the industry, franchise dealers may see personal indemnity waived for qualified cases. If multiple dealerships are held, financial statements may be reviewed to determine aggregate exposure.


Membership in associations strengthens dealers' standing during underwriting. Association members are considered favorable risks due to their awareness of regulations and commitment to industry fairness. Associations exist for both franchise and non-franchise dealers, providing support, legal assistance, and industry promotion.

Navigating Claim Procedures

All certificate of title bonds operate on a basic premise: If the bondholder violates the bond's terms, a claim can be filed for compensation. If valid, the surety will pay the claim, but the bondholder must reimburse the surety in full.

Simplifying the Bonding Experience

Merchants Bonding Company's expertise and simplified bonding process ensure that professionals in the motor vehicle industry can meet licensing requirements seamlessly.


Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.


A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.

All information provided is subject to change without notice.