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Bonds: Frequently Asked Questions

1.      Why do I need a bond?

Answer:  On December 24, 2002, acting-Governor Jane Swift signed a bill into law that requires all Class 2 dealers in the Commonwealth of Massachusetts to post a $25,000 bond with their municipalities upon issuance of a new license or a renewal.

2.      Where can I get a bond?

Answer:  MIADA is providing competitively-priced bonds for members.  Bonds are available in one-year and three-year pricing packages.

3.      What does the bond cover?

Answer:  A bond Covers a dealer for claims made against him by a consumer who has experienced problems with a vehicle that has been sold to him.  The bond compensates the consumer in the event that the dealer is unable or unwilling to make good on the consumer's claim.  Unlike an insurance policy, however, although the bond makes the consumer whole, the dealer is responsible for paying the bond company back for the satisfied claim. 

4.      What if I have multiple locations?

Answer:  A separate bond shall be required for each different name under which the dealer conducts his business and for each city or town in which the dealer has a place of business.

5.      How can a consumer make a claim against the bond?

Answer:  In the event that a consumer has been wronged, the consumer must proceed through the normal steps of mediation with the dealer followed by court action if no resolution of the dispute can be attained.  The bond will compensate a consumer's claim only upon a court-ordered judgment against the dealer.  At this point, if the dealer is unwilling or unable to pay the consumer the judgment, the bond will do so.

6.      What will happen if I don't post a bond?

Answer:  Cities and towns must have a copy of the dealer's bond or an alternative that will be accepted, such as a certificate of deposit or irrevocable letter of credit equal to the bond amount, upon submission of the application for a new license or license renewal.  Failure to provide these will result in the city or town denying the issuance of a current-year license to the dealership.

7.      Do my salesmen need to be bonded, too?

Answer:  No.  The bond is issued to the dealership and covers the employees of the business.  However, this means that it is the owner-principal, not the individuals operating under a license, who is held responsible for whatever claims are made against the dealership.

General Laws of Massachusetts Website: Bond Requirement Text