What is a Motor Vehicle Registration Bond?

Motor vehicle registration bonds are a subset of the broader license bond category that must be filed with the state government agency (usually the DMV) responsible for regulating vehicle registration as a condition of licensure for most used motor vehicle registration servicers, motor vehicle verifiers, tag agents, third party registration servicers, and electronic temporary registration servicers. 

Motor vehicle registration bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as a auto verification bond, will also be referred to as the “surety company” or the “bond company”. Motor vehicle registration bonds refer to the registration service provider as the Principal, the surety bond company as the Obligor and the state DMV as the Obligee.

Why is a Motor Vehicle Registration Bond required?

Registration service providers are required to purchase motor vehicle registration bonds by state statutes to protect the state government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from a vehicle tag agent breaking vehicle registration license law. The surety company provides the government a guarantee (the surety bond) that the customers of a licensed motor vehicle registration service will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the motor vehicle registration license up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, registration servicers are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension. 

Motor Vehicle Registration license bond violations triggering a bond payout may include contributing to fraudulent or dishonest practices surrounding registration services or operating with an invalid license

How much does a Motor Vehicle Registration Bond cost?

Motor vehicle registration bonds generally cost between 1% and 5% of the bond limit.

Example: $25,000 Motor Vehicle Registration Bond Cost

Credit Score Premium Rate Bond Cost
680 or above 1.0% $250
650-679 1.5% $375
625-649 2.0% $500
600-624 2.5% $625
575-599 3.0% $750
500-574 5.0% $1,250
 

The actual cost of a specific motor vehicle registration bond can vary widely depending on the risk associated with the state regulations and the tag agent’s license history, experience and creditworthiness. 

Is a Credit Check Required for Motor Vehicle Registration Bonds?

Credit checks are required for most motor vehicle registration bonds. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond, and some companies may be less stringent than others. 

How does the wording in the bond form impact the cost of a Motor Vehicle Registration Bond?

The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and registration service (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the motor vehicle registration servicer via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a vehicle registration bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.

Aggregate Limits
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 motor vehicle registration bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Motor vehicle registration bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.

Cancellation Provisions
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the registration service and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the registration failing to pay premiums due, claim payouts, or material changes in the servicer’s credit score. Motor vehicle registration bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.

Forfeiture Clause
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Motor vehicle registration service bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.  

Where can I find more information on a specific Motor Vehicle Registration Bond?

To find information on specific motor vehicle registration license bonds, select the state and use our search function to find any requirement across the country.

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