Proposed Massachusetts Bill Doubles Dealer Bond Limit

Amid rampant inflation in the used car market, Massachusetts SD1027 seeks to increase the amount of the required surety bond for used auto dealers to $50,000 from the current $25,000, while strengthening the state’s “Lemon Aid Law”. The bill, proposed by state senator Paul Feeney and Attorney General Muara Healey, can significantly impact the underwriting requirements for Massachusetts Used Auto Dealer bonds.

What’s In the Bill?

SD1027 contains provisions that increase the required bond amount for used auto dealers, grant the attorney general the authority to file a claim against a dealer’s bond, and update the state’s express warranty requirements (lemon law). The bill’s key provisions include:

• Increasing the required limit on Used Auto Dealer bonds from $25,000 to $50,000
• Allowing the Massachusetts Attorney General to file a claim against a used dealer’s bond on behalf of a consumer or class of consumers
• Removing language from existing statutes requiring consumers to obtain a court judgment before filing a claim against a dealer’s bond
• Increasing the mileage limit for used motor vehicles covered under the state’s express warranty law:
  • Warranties cover vehicles with less than 50,000 miles at the time of sale for 90 days or 3,750 miles, whichever comes first
  • Vehicles with mileage ranging from between 50,000 to 99,999 at the time of sale have a warranty period of 60 days or 2,500 miles, whichever comes first
  • Vehicles with mileage ranging from between 100,000 to 199,999 at the time of sale have a warranty period of 30 days or 1,250 miles, whichever comes first

How Does The Bill Impact Massachusetts Used Auto Dealer Bonds?

If signed into law, SD1027 could cause surety companies to increase their risk classification on Used Auto Dealer bonds in Massachusetts. Currently, consumers in Massachusetts must receive a judgment from a court before filing a claim against a dealer’s bond. The bill removes that requirement and replaces it with a provision allowing the state’s Attorney General to file claims on behalf of consumers. As such, filing a claim against these bonds will become easier if the bill is passed. Additionally, the legislation will also increase surety companies’ lost adjustment expenses (LAE) as they would have to determine the validity of claims themselves, a responsibility that currently rests with the courts. These changes will most likely lead to surety companies instituting stricter underwriting requirements for these bonds.

The bill doubles the required bond amount for used dealers from $25,000 to $50,000. Surety companies will likely charge more significant premiums to cover their increased liability. Additionally, surety companies generally require bond applicants to submit both personal and business financial statements for bonds with limits of $50,000 or higher and may institute this requirement for Massachusetts Used Auto Dealer bonds going forward.

The Bottom Line

SD1027 makes issuing Massachusetts Used Auto Dealer bonds riskier for surety companies. If passed into law, the bill will make obtaining a surety bond harder and more expensive for used auto dealers in Massachusetts while at the same time offering increased protection to consumers in the state.