Iowa Auto Dealer Bond: A Comprehensive Guide

September 29th, 2020

This guide provides information for insurance agents to help new and pre-owned car dealership owners on Iowa Auto Dealer bonds

At a Glance:

• Average Cost: $281 – $4,500 per year, based on the business owner’s credit
• Bond Amount: $75,000
• Who Needs It: All dealers who seek to buy, sell, lease, rent, repair or exchange motor vehicles either directly or indirectly
• Purpose: To ensure the public will receive compensation for financial harm if an auto dealer fails to comply with dealer licensing law
• Who Regulates Dealers in Iowa: The Iowa Department of Transportation

Background

Iowa Code 322.7 requires all vehicle dealers to obtain the appropriate vehicle dealer licenses to remain compliant with state law. These statutes also require that all dealers purchase and maintain either a $75,000 surety bond to be eligible for their respective licenses.

***Important Note: Iowa House File 391 raised the bond requirement for travel trailer dealers from $25,000 to $75,000. This legislation went into effect on July 1, 2019***

https://www.youtube.com/watch?v=ms3_XcwbBKM

What is the Purpose of the Iowa Auto Dealer Bond?

Iowa requires dealers to purchase the Motor Vehicle Dealer Bond as part of the application process for licensure. The bond protects all purchasers, sellers, financing agencies, and government agencies from monetary loss stemming from any fraud or fraudulent representation, failure to comply with licensing law, and failure to pay required taxes and fees. In short, the bond is a type of insurance that protects the public if the dealer breaks the laws pertaining to motor vehicle dealers.

How Can an Insurance Agent Obtain a Iowa Auto Dealer Bond for their Customer?

BondExchange makes obtaining a Iowa Auto Dealer Bond easy. Simply login to your account and use our keyword search to find the “auto dealer” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone, email or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

How Much Does the Iowa Auto Dealer Bond Cost?

The $75,000 Iowa auto dealer bond costs between $281 to $4,500 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500. The chart below offers a quick reference for the approximate bond cost.

$75,000 Iowa Auto Dealer Bond Cost

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

How Does Iowa Define “Motor Vehicle Dealer”?

Iowa Code 322.2 defines a motor vehicle dealer as anyone who sells, exchanges, manufactures, distributes, dismantles or repairs motor vehicles either directly or indirectly in the State of Iowa.

How Do Auto Dealers Apply for a License in Iowa?

The process for applying for a motor vehicle dealer license in Iowa is pretty complex. Below are the general guidelines, but dealers should refer to the Application form for details on the process.

License Period – The dealer license expires on December 31st of each even numbered year (2020, 2022, 2024 ect.) and must be renewed before the expiration date.

Step 1 – Determine the License Type

Iowa requires dealers to obtain specific licenses corresponding to the nature in which the dealer’s business operates. Keep in mind that dealers will need to acquire a license for each type of business they wish to operate. Below are the different types of the Iowa Dealer License.

• • Retail – Dealers who sell new or used vehicles as a retailer (most common)
  • Restricted – Applies to the following dealers
    • Dealers selling vehicles strictly through on offer to purchase in lease agreements
    • Dealers solely selling repossessed vehicles
    • Fleet sale dealers
    • Auction only dealers
    • Insurers selling vehicles through the course of their regular business
  • Manufacturer/Distributor or Wholesaler – Dealers who manufacture/distribute or sell vehicles wholesale
  • Leasing – Dealers who lease cars for longer than 60 days
  • Recycler – Dealers who salvage, repair, or sell used motor vehicle parts
  • Towable RV – Dealers who sell towable recreational vehicles
  • Special Equipment – Wholesale dealers who modify existing motor vehicles
  • Mobile Home – Dealers who sell mobile homes

Step 2 – Establish a Location

Dealers are required to establish a permanent place of business, separate from any other business, that meets the following minimum requirements:

• • All Dealers:
    • An office that has a telephone listed in the name of the business
    • Operate at least 32 hours per week Monday – Friday (does not apply to motorcycle only dealers)
    • Repair facility large enough to hold at least one vehicle and contains tools/equipment, is separate from the office, and must have the minimum dimensions of 14 by 24 feet. (10 by 15 feet for motorcycle only dealers)
  • New Vehicle Dealer:
    • A display space that is at least 18 by 30 feet (10 by 15 feet for motorcycle only dealers)
  • Used, Trucks/MotorHome Only Dealers:
    • An all-weather surface display space that is separate from the parking lot and at least 18 by 30 feet.

Step 3 – Obtain Zoning Approval

Dealers must obtain written approval from the local zoning official that the dealer’s place of business is in compliance with all zoning requirements.

Step 4 – Purchase Insurance

Dealers must purchase financial liability coverage with the following limits per accident:

• • $100,000 bodily injury for one person
  • $300,000 bodily injury for two or more people
  • $50,000 property damage

Step 5 – Complete a Dealer Training Course

All used vehicle dealers must attend an 8 hour training course before getting their license. Dealers can register for the training program here. The following used vehicle dealers are exempt from the training requirements:

• • Nationally licensed rental companies
  • National vehicle auction companies
  • Wholesale only auction companies
  • Used vehicle dealerships owned by a franchised dealer
  • Banks, credit unions, saving and loan associations

Step 6 – Purchase and File a Surety Bond

Motor vehicle dealers must purchase and file a $75,000 motor vehicle dealer bond.

Step 7 – Complete the Application

All new dealer regulatory license applications and dealer regulatory license renewal applications should be mailed to:

Office of Vehicle & Motor Carrier Services
Iowa Department of Transportation
P.O. Box 9278
Des Moines, Iowa 50306-9278

Dealers should include the following information with their application:

• • 7.a Corporations – Dealers operating as a corporation must file their articles of incorporation with the State of Iowa.
  • 7.b Franchise – Franchise dealer must submit a franchise dealer with a manufacturer/distributor authorizing them to sell each make and model of new motor vehicles.
  • 7.c Dealer Plates – Dealer plates are issued with the dealer license and must be requested when submitting the application. The dealer plate request form can be found here.

Step 8 – Pay Fees

The following fees are associated with obtaining an Iowa Dealer License

• • $40 fee per dealer plate
  • $750 fee per dealer plate for haul and tow motor vehicles
  • $70 Dealer license fee
  • $70 Towable RV license fee
  • $70 fee for the Recycler License
  • $70 Salvage License fee
  • $30 fee for the Leasing License
  • $70 fee if a manufacturer
  • $40 new vehicle distributor or wholesaler fee

Step 9 – Pass Inspection

The Bureau of Investigation and Identity Protection must approve the dealer’s business location and ensure it meets the minimum requirements outlined in Step 2. Dealers can schedule an inspection here.

How Does an Iowa Motor Vehicle Dealer Renew Their License?

The Vehicle Dealer License expires on December 31st of every even numbered year. Dealers will receive a renewal packet around 45 days before the license expiration date. Dealers can mail their renewal packet along with all required fees to:

Office of Vehicle & Motor Carrier Services
Iowa Department of Transportation
P.O. Box 9278
Des Moines, Iowa 50306-9278

What Are the Insurance Requirements for Iowa Auto Dealers?

The State of Iowa requires all licensed dealers to obtain a Financial Responsibility Insurance Certificate on all vehicles with dealer plates in amounts of $100,000 in bodily injury coverage per person, $300,000 in bodily injury coverage per accident and $50,000 in property-damage coverage per accident. Dealers must also file a $75,000 motor vehicle dealer bond.

How Do Iowa Auto Dealers File Their Bond?

The $75,000 surety bond must be signed by both the surety company that issues the bond and the auto dealer. The bond form should include the following items:

• Legal name of entity/individual(s) buying the bond
• Surety company’s name and signature
• Date on which the bond will be executed
• Date the bond is signed
• Bond amount
• Witness signatures for both the principal and surety

Dealers should mail the completed bond form, including the power of attorney, to the following address:

Office of Vehicle & Motor Carrier Services
Iowa Department of Transportation
P.O. Box 9278
Des Moines, Iowa 50306-9278

What Can Dealers Do to Avoid Claims Against the Iowa Auto Dealer Bond?

To avoid claims on the Iowa Auto Dealer Bond, dealers must follow all dealer regulations in the state, including some of the most important issues below that tend to cause claims:

• Do not engage, or allow representatives of the business to engage, in any acts of fraud
• Pay sellers of vehicles promptly and in full
• Do not alter a vehicle’s odometer
• Pay taxes on time and in full. Dealers should consider setting aside tax obligations as they accrue.
• Do not engage in any illegal selling practices
• Register for and renew the dealer license biennially
• Adhere to the dealer license plate regulations approved by the state
• Pay the license application fees

What Other Insurance Products Can Agents Offer Dealers in Iowa?

Iowa requires dealers to obtain Financial Liability Insurance on all vehicles with dealer plates. Most reputable dealers that provide towing or service station services should also obtain garage keepers liability. Bonds are our only business at BondExchange, so we do not issue any form of liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Iowa Auto Dealer Customers?

Iowa conveniently provides a public database to search for active motor vehicle dealers in the state. The database can be accessed on the DOT site here. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

What Other States Require Auto Dealer Bonds?

All 50 states and the District of Columbia require auto dealers to obtain an Auto Dealer Bond as a prerequisite for licensure. Insurance agents should utilize our Main MVD Page for a detailed analysis of the Auto Dealer Bond requirements nationwide.