Texas DMV Pressing the Gas to Increase Dealer Bond Limit

This bill has passed. For details, read the most recent article here.

The Texas Legislature is seeking to amend motor vehicle dealer licensing laws in the Texas Transportation Code with House Bill 3533, specifically Section 503.033. So, what does this mean for auto dealers? 

Doubling the Auto Dealer Bond Limit

The Texas Department of Motor Vehicles (TX DMV), Consumer Protection Advisory Committee recommends an Auto Dealer Bond limit doubling the amount from $25,000 to $50,000. Franchise car dealers do not need a surety bond, so this bill does not apply to them.

The Consumer Protection Advisory Committee has the role of advising the board on issues relating to enforcement and investigation. This encompasses vehicle registration and title fraud, lemon laws, and other topics relating to the wellbeing of Texas citizens, including the surety bond requirement.

According to the CarGurus Used Car Price Trends tool, there is currently a 22.51% increase in the average price of used vehicles year over year. In 2019, the average used car price was approximately $21,000 and now is over $25,000. With such a steep increase, it can be assumed that the higher bond limit would allow for full recovery on a vehicle valued at over $25,000 if a bond claim were pursued. Otherwise, the damaged party or parties would be left without full recompense. Some states, like Nevada and Arizona, utilize an even higher Auto Dealer Bond Limit of $100,000.

What About Surety Bond Alternatives?

Dealers can no longer file “other security”, referenced in Section 503.033 Subsection (a) of the Texas Transportation Code if Texas House Bill 3533 passes. In practice, this may not have been allowed since 2011 anyways, but the code will now reflect that.

The other form of security typically accepted is a cash deposit, where car dealers can choose to front the $25,000 to the Department of Motor Vehicles instead of posting a surety bond. With House Bill 3533, a surety bond would be the only form of security accepted by the TX DMV, which brings in a third party (such as Jet Insurance Company) to handle the legalities.

What Else Should Texas Motor Vehicle Dealers Know About House Bill 3533?

Dealers have always been required to post their general distinguishing number (GDN) in a visible location at their business, and now must do so with their surety bond information.

We never thought a surety bond was so special that it needs to be framed in a public location, but will not turn away from this distinguished honor.

When Do These Changes Take Place?

If passed, this Act will apply to applications submitted on or after September 1, 2021. Applications submitted before the Act’s effective date are governed under the current law of the Texas Transportation Code Chapter 503. You can follow updates on House Bill 3533 on the Texas Legislature website.