C.C.
S.,
Of course you need to talk to your dad and step-mom before your step-brother. Dont forget that these 2 boys are minors and you are not your step-brother's guardian. This needs to be handled by his parents directly. They in turn can discuss this with the parents of the other boy. Perhaps tell your dad first since your relationship with him is better. Let him in turn tell your stepmom and they can proceed from there. I can imagine you feel responsible because they were in your car, but you are not his parent. Other discussions about this can take place between you and your step-brother but not the first one and only with your dad and step-mom's permission.
Your other responsibility is to your kids. I can imagine you are wondering if anything like this has happened to them when in your stepbrother's care. As a general rule, I never never never, no matter who it is, leave my kids in the care of a teenage boy. They are just too sexually curious and unfortunately teenage boys brains are wired to act before they think. I have some wonderful nephews but they never babysit my kids - period.
There should absolutely be a discussion with your step-brother about sexual boundaries, especially with children. He needs to be very aware that it is never appropriate to touch a child sexually. His parents should be involved with you and your husband in that conversation and whether he should be allowed to be with your kids unsupervised.
This has got to be heart-wrenching for you - with lots of love and honesty, you will all get through this.