Requires used motor vehicle dealers to have a $20,000 surety bond if they sell 50 or fewer cars a year, and a $100,000 surety bond if they sell more than 50 a year

Title of bill

An act to amend the vehicle and traffic law, in relation to surety bond requirements for car dealers

Purpose

This bill will increase the required surety bond level for all used car dealers, with a lower bond level for those with a low volume of sales, and a higher bond level for those with a high volume of sales.

Summary of provisions

Section 1: Provides that used motor vehicle dealers must obtain and maintain a surety bond of $20,000 if they sell fewer than 50 cars annually, or a surety bond of $100,000 if they sell more than 50 cars annually. Dealers which currently have a bond in effect prior to the effective date of the act will not have to increase their bond levels to the new levels until they alter, extend, replace, etc. their current bond. Surety bond issuers must notify the Department of Motor Vehicles when a dealer's bond expires, and the DMV must verify within five days that a dealer currently has a valid surety bond.

Section 2: This act shall take effect on the one hundred eightieth day after it shall have become a law.

Existing law

Under current law, the surety bond required for new, franchised dealerships is fifty thousand dollars. Used dealerships who have sold less than two hundred vehicles in the previous calendar year must obtain a surety bond in the amount of ten thousand dollars. Used dealerships who have sold more than two hundred vehicles in the previous calendar year must obtain a surety bond in the amount of twenty five thousand dollars.

Currently, no mechanism exists to notify the DMV upon expiration of a surety bond.

Justification

Surety bond levels in New York are inadequate to protect consumers in the event of a default by dealerships. Currently, most used car dealerships are only required to obtain a $10,000, or at most, a $25,000 surety bond. While new, franchised car dealerships are more heavily regulated within their industry by their associated manufacturers, used car dealerships have more leeway to operate independently on their own terms. This creates a higher risk of deceptive, fraudulent, or otherwise illegal behavior in the industry, and much of this activity is surfacing in the used car industry. Ensuring adequate bond levels guarantees that consumers can recover in the event that they are wronged by a dishonest dealership or lender.

Further, no mechanism exists to notify the DMV upon expiration of a surety bond, and this allows bad actors to operate without any surety bond at all, leaving consumers completely vulnerable and unable to recover any damages.

Legislative history

This is a new bill.

Fiscal implications

None.

Local fiscal implications

None.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law.