Connect with us

Hi, what are you looking for?

News

FMCSA proposes tougher rules for truck broker financial backing

The Federal Motor Carrier Safety Administration is proposing more oversight of truck brokers and freight forwarders and the surety bond and trust companies that back them up in an effort to ease the monetary pain they can inflict on motor carriers.

“FMCSA believes that most brokers operate with integrity and uphold the contracts made with motor carriers and shippers,” the proposal states. “However, a minority of brokers with unscrupulous business practices can create unnecessary financial hardship for unsuspecting motor carriers.”

The Owner-Operator Independent Drivers Association has complained to FMCSA of those hardships. In comments filed in 2018 to an advanced rulemaking proposal on the issue, the group pointed out that a legislative statute known as MAP-21, signed into law in 2012, increased the amount of the broker bond to a minimum $75,000, “but raising the bond to this amount did not stop brokers from continuing to steal transportation services in excess of the bond amount,” OOIDA stated.

“It is critical that FMCSA’s final rule implements the imperatives and timeliness provided in the statute to act quickly by suspending a broker’s authority before the broker’s nonpayment to motor carriers results in claims on its bond or trust in an aggregate amount of more than $75,000.”

In the proposed rule to be published in the Federal Register on Thursday, FMCSA will consider regulatory modifications in five areas: assets readily available, immediate suspension of broker/freight forwarder operating authority, surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency, enforcement authority, and entities eligible to provide trust funds for trust fund filings known as form BMC-85.

FMCSA proposes allowing brokers or freight forwarders to meet a regulatory requirement to have “assets readily available” by maintaining trusts that meet certain criteria, including that they can be liquidated within seven calendar days of an event that triggers a payment from the trust.

The proposal also stipulates that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund.

“This would happen when a broker or freight forwarder consents to a drawdown, or if the broker or freight forwarder does not respond to a valid notice of claim from the surety or trust provider, causing the provider to pay the claim, or if the claim against the broker or freight forwarder is converted to a judgment and the surety or trust provider pays the claim,” according to the agency.

“FMCSA also proposes that, if a broker or freight forwarder does not replenish funds within seven business days after notice by FMCSA, the agency will issue a notification of suspension of operating authority to the broker or freight forwarder.”

In addition, to implement a requirement under MAP-21 for suspending a surety provider’s authority, “the agency would first provide notice of the suspension to the surety/trust fund provider, followed by 30 calendar days for the surety or trust fund provider to respond before a final agency decision is issued.”

FMCSA attempted to estimate how many brokers fail to pay motor carriers, noting that approximately 1.3% of brokers — 440 in 2022 — would see a drawdown on their surety bond or trust fund within a given year due to failure to pay, with average per-claim amounts of approximately $1,700 submitted.

Of these brokers, 17% (75) may receive total claims in excess of $75,000, potentially leading to interpleader proceedings, where a lawsuit is filed usually by the surety or trust fund provider.

 “It is FMCSA’s intent that the provisions in this rule, if finalized, would mitigate the need to initiate interpleader proceedings and alleviate the concern of broker nonpayment of claims,” the agency said.

In its own comments filed in the 2018 advanced rulemaking, the Transportation Intermediaries Association, which represents brokers, asserted that enforcement should be focused on fraudulent surety and trust fund providers.

If such companies are allowed to continue to operate, TIA argued, “they will not have the funds to pay carriers for their claims, especially in an economic downturn when business failures and related valid claims upon the trust multiply and when carriers need the protection the most. A trust’s failure to pay will leave the carriers with no recourse to recover funds owed for services provided.

“TIA urges FMCSA to give its highest priority to ensuring that trust providers are fully funded to avoid the disastrous consequences of trust fund failures (or refusals to pay claims) that could harm many small carriers and endanger the driving public.”

Comments on the proposal are due March 6.

Click for more FreightWaves articles by John Gallagher.