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FMCSA proposes update to broker finance requirements

Jan. 5, 2023
To ensure carriers are properly paid for hauling freight, FMCSA proposes new rules regarding brokers' financial security requirements so that they have reserves to pay claims levied against them.

The Federal Motor Carrier Safety Administration is considering tightening regulations to lessen the number of what it calls “unscrupulous” brokers who try to avoid paying claims levied against them by carriers, according to a proposal published and opened for public comments today in the Federal Register.

Brokers and freight forwarders are required to maintain at least $75,000 in readily available assets for financial security. The assets are held for the possibility that a motor carrier makes a claim that it has not been paid for services rendered. If these funds for a broker or freight forwarder drop below $75,000, FMCSA would suspend its operating authority. The funds can be saved in either a surety bond or trust fund, according to the MAP-21 law.

The proposed rulemaking is an attempt to alleviate brokers’ non-payment of claims by ensuring that the funds can be readily liquified and paid to carriers. Brokers and freight forwarders would be required to liquefy and pay assets to carriers within seven calendar days. FMCSA also proposes adding additional penalties to the Code of Federal Regulations for brokers that violate these requirements.

While the requirements have been on the books for years, FMCSA has had difficulty enforcing the financial security requirements, not having a way to know which brokers maintain less than the necessary funds.

“That's the ultimate question when it comes to this industry, in its entirety, is enforcement issues." said David Heller, SVP of safety and government affairs at the Truckload Carriers Association, "and there's certainly not enough people to enforce some of the rules and regs in the trucking industry."

See also: FMCSA wants another look at broker and dispatch definitions

The Owner-Operator Independent Drivers Association released a statement supporting the proposal, acknowledging dissatisfaction with previous enforcement.

“After more than 10 years since the enactment of the MAP-21 highway bill, which raised minimum broker bond levels to $75,000 and established financial security requirements for freight forwarders, FMCSA has announced a notice of proposed rulemaking that might actually implement many of those principles," commented Jay Grimes, OOIDA’s director of federal relations. "Unfortunately, the MAP-21 broker bond provisions have not really been enforced and motor carriers are still being denied rightful claims or, in many cases, only getting a small percentage of what they’re owed.”

Additionally, the bond surety or the trustee, upon being notified of bankruptcy or insolvency of the broker, would have to notify FMCSA. If the FMCSA provides a notice of suspension to surety or trust fund providers, the providers would have 30 calendar days to respond. Furthermore, FMCSA wrote that loan and finance companies will no longer be able to provide a surety or trust fund for brokers, stating it “has received robust feedback that loan or finance companies are not adequately regulated and hence inappropriate for serving as stewards of money held in trust for motor carriers and shippers.”

See also: Small carriers request increased transparency with brokers

FMCSA estimates that approximately 1.3% of brokers (about 440) had to expend part of their financial security funds in 2022. The average claim amount was $1,700, but within that 1.3% of brokers, about 17% received total claims in excess of $75,000. In those cases, litigation can ensue between carriers and brokers.

In the proposal, FMCSA wrote, “the financial responsibility provider will often submit the claims to a court … to determine how to allocate the broker bond or trust fund,” and that the process “can be costly and time-consuming for motor carriers,” resulting in the carrier being paid less than the entire claim.

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

The comment period ends March 6.

About the Author

Scott Keith

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