Rules and Regulations Regarding Dealers, Manufacturers and Rental Licenses

Regulation Authority:

RIGL 31-5-2 and 31-5.1-3

Purpose and Reason:

These amendments decrease the bond amount applicable to vehicle and auction dealers from $100,000.00 to $50,000.00. These amendments also extend the time frame for filing these bonds from March 16, 2009 to March 31, 2009.

Brief statement of Reason for Finding Imminent Peril:

In accordance with the provisions of subsection (b) of §42-35-3 of the Rhode Island General Laws, as amended, I have approved an emergency amendment to the RULES AND REGULATIONS REGARDING DEALERS, MANUFACTURERS & RENTAL LICENSES. This amendment has been promulgated pursuant to the authority contained in Rhode Island General Laws §31-5-2 and 31-5.1-3, as amended. This amendment is to become effective immediately upon filing with the Secretary of State. An immediate effective date is necessary in view of my finding that any substantial delay might imperil the public health, safety, and welfare. This finding is based upon the following: R.I. Gen. Laws § 31-5-1 et seq. addresses “Dealers’, Manufacturers’, and Rental Licenses.” Pursuant to R.I. Gen. Laws §31-5-2, as amended, “(t)he department of revenue shall issue the licenses provided for in §§ 31-5-5 --- 31-5-9 and §31-5-34... and shall have power to make and to issue rules and regulations to fulfill the purposes of those chapters and to protect public interest.” R.I. Gen. Laws § 31-5.1-1 et seq. addresses “Regulation of Business Practices among Motor Vehicle Manufacturers, Distributors, and Dealers.” Pursuant to R.I. Gen. Laws § 31-5.1-3(c), “(t)he department of revenue may make rules interpreting the provisions of subsection (a) of this section.” In accordance with this statutory authority, on January 22, 2009, the Division of Motor Vehicles adopted revised “Rules and Regulations Regarding Dealers, Manufacturers & Rental Licenses.” Section VI, entitled “Requirements for Dealers”, contains numerous provisions, including “(O) Financial Requirements”, which states as follows: “In order that the purchasers of motor vehicles shall be adequately protected, all applications for a license must be accompanied by a financial statement prepared by a Certified Public Accountant (CPA) which must demonstrate a sufficient amount of cash and other tangible assets over and above all liabilities that would justify the issuance of such license. The Department may request a line of credit. The Department has the authority to request for inspection any and all documents pertaining to the business. A bond in the amount of one hundred thousand dollars ($100,000) for all motor vehicle dealers, and fifty thousand dollars ($50,000) for moped and motorcycle dealers, payable to the Department, issued by a surety company authorized to do business in Rhode Island, must be filed. Said bond shall be filed yearly along with the dealer’s license renewal forms and shall be in effect until December 31 of that year.” Currently, motor vehicle dealers have up to March 16, 2009, to comply with the one hundred thousand dollar ($100,000) surety bond requirement identified in Section VI, (O). Prior to the adoption of these revised rules, the surety bond requirement for motor vehicle dealers was fifteen thousand dollars ($15,000). With the enactment of these revised rules, this amount increased to one hundred thousand dollars ($100,000). In so acting, the Division of Motor Vehicles sought to further protect consumers by making sure that they would be financially protected and able to recover from a failed motor vehicle dealer. During the past few months, however, the economic situation in the United States has seriously deteriorated, and this situation has resulted in especially difficult times here in Rhode Island. Among other considerations, the Ocean State is believed to have one of the highest unemployment rates in the nation. Moreover, motor vehicle sales across the nation and in Rhode Island have declined drastically during the past few months. Nationally, this precarious situation has brought the American automotive industry—once a pillar of our economy—to a critical point. Locally, it threatens to put motor vehicle dealerships out of business. During the past couple of months alone, at least five Rhode Island motor vehicle dealerships have closed. Yet another result of this economic downturn is the difficulty that some of the State’s motor vehicle dealers are now having in their quest to secure the newly-required one hundred thousand dollar ($100,000) surety bond. Due to decreasing motor vehicle sales and the resulting ramifications for dealers, including decreasing profits and the accompanying decrease in financial liquidity, difficulty obtaining credit, and declining credit availability, many motor vehicle dealers are in a perilous financial situation. Many dealerships are finding it hard, if not impossible to obtain this one hundred thousand dollar ($100,000) surety bond. During the past few weeks, the Division of Motor Vehicles has received approximately 50 telephone calls from motor vehicle dealers relating their inability to secure such a bond. From these conversations and discussions with insurance agents and with underwriters, the Division anticipates that it will receive more calls as a growing number of dealers are unsuccessful in their efforts to obtain this bond. It is thus undeniable that there will be imminent peril to the public health, safety and welfare unless this emergency amendment is adopted and the motor vehicle dealers surety bond requirement is decreased to fifty thousand dollars ($50,000). Motor vehicle dealers will also be given an extension of time until March 31, 2009, within which to comply with this requirement. Such a lower bond amount will still adequately protect customers by making sure that they will be financially protected and able to recover from a failed motor vehicle dealership. At the same time, the amount is not so high that it will be unattainable by a significant percentage of motor vehicle dealers or that it will threaten their ability to remain in business. Pursuant to subsection (b) of § 42-35-3, this emergency amendment shall take effect upon filing with the R. I. Secretary of State and shall remain in effect as provided in said subsection. While the emergency amendment is in effect, regulations will be promulgated pursuant to subsection (a) of § 42-35-3. This emergency amendment is available for inspection at the Rhode Island Division of Motor Vehicles, 100 Main Street, Pawtucket, Rhode Island; on the DMV website www.dmv.ri.gov; and will be available on the Rhode Island Secretary of State’s website www.sec.state.ri.us/rules/ .