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FMCSA publishes final rule on broker financial responsibility

Nov. 20, 2023
The agency has published a ruling that outlines requirements for brokers and freight forwarders, and their financial institutions, to ensure carriers get paid.

The Federal Motor Carrier Safety Administration has issued a final rule to ensure brokers have the money necessary to compensate carriers.

Brokers and freight forwarders must maintain at least $75,000 in readily available assets for financial security. This is in case a carrier claims that it has not received payment for services rendered. If a broker or freight forwarder's available financial security falls below $75,000 and is not replenished within seven days after notice, FMCSA will suspend its operating authority.

A trust fund, federally insured letter of credit, or treasury bond may be used if it can be liquidated within seven days. If the broker or freight forwarder cures the default, and the surety company or financial institution reinstates the bond or trust or issues a new one, FMCSA will lift the suspension.

See also: Bogus brokering met with aggressive counterattack

Financial institutions and surety providers acting as broker trustees must notify FMCSA within two business days if the security falls below $75,000 or determines that it will inevitably be due to submitted claims. After receiving notice, FMCSA will publish a notice of failure in its register. If a trust company does not notice, it can seek penalties.

Trust companies must notify FMCSA to improve enforcement, as the agency cannot always 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," David Heller, SVP of safety and government affairs at the Truckload Carriers Association, told FleetOwner about FMCSA's January proposal. "And there's certainly not enough people to enforce some of the rules and regs in the trucking industry."

The final rule removes loan and finance companies from the list of providers to be trustees for brokers' assets for financial security "because this type of institution is not subject to the rigorous federal regulations applicable to chartered depository institutions or to the state regulations applicable to insurance companies." Loan and finance companies are prohibited from offering BMC-85 trusts unless they obtain certification to operate as another type of eligible financial institution.

Provisions of the rule go into effect Jan. 16, 2025, and Jan. 16, 2026.

Trucking defends against unscrupulous brokers

"This rule will result in benefits to motor carriers," FMCSA stated in the rule. The agency states that often when a carrier submits claims to the financial responsibility provider over $75,000, the provider will submit the claims to a court in an interpleader action, which can be costly and time-consuming for carriers.

"FMCSA 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."

See also: FMCSA removes exact number from speed limiter proposal

FMCSA estimates that 1.3% of brokers—or 429—experienced a drawdown on their surety bond or trust fund in 2022. The average claim is about $1,900. However, of the brokers who receive claims, 18% may receive total claims of more than $75,000, potentially leading to interpleader proceedings.

The Transportation Intermediaries Association (TIA), the professional organization of the third-party logistics industry, released a statement on its website praising the rulemaking.

"TIA applauds the agency for moving forward on this long overdue rule. 3PLs and brokers are in the midst of a fraud epidemic, and a significant aspect of that fraudulent activity centers around trust fund providers and fraudulent entities in the marketplace," said TIA President and CEO Anne Reinke. "The FMCSA's efforts to increase the barrier of entry into the brokerage industry through the elimination of fraudulent trust fund providers will make it more challenging for criminals and scammers to establish a presence in the marketplace as easily."

Todd Spencer, president of the Owner-Operator Independent Drivers Association, commented, "This is a step in the right direction to enhance oversight of broker financial responsibilities as we continue to work with partners to fight for increased broker transparency and the elimination of broker fraud."

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Scott Keith

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