The Federal Motor Carrier Safety Administration (FMCSA) has published a final rule tightening financial responsibility requirements for brokers and freight forwarders in an attempt to cut down on fraud and non-payment of motor carriers. It’s been more than a decade since Congress directed the FMCSA in 2012 to make changes to broker financial requirements in the Moving Ahead for Progress in the 21st Century Act (MAP-21). Provisions of that law increased the financial security requirement for freight brokers and established a financial security requirement for freight forwarders for the first time.
In January 2023, FMCSA issued a Notice of Proposed Rulemaking on rule revisions for the financial requirements for brokers and freight forwarders. The agency solicited comments for 90 days and held a listening session on this rulemaking and other broker-related matters in conjunction with the Mid-America Trucking Show in Louisville, KY. The final rule was posted in the Federal Register on November 16, 2023.
FMCSA believes that most brokers operate with integrity and uphold the contracts made with motor carriers and shippers. But a minority of brokers with unscrupulous business practices can create unnecessary financial hardship for unsuspecting motor carriers. The agency estimates that approximately 1.3% of brokers will experience a drawdown on their surety bond or trust fund within a given year, with average claim amounts of approximately $1,900. Of these brokers, 18% may have total claims more than the $75,000 minimum required by law. When this happens, the resulting process of trying to get claims paid by the surety company or other financially responsible party can be costly and time consuming. Motor carrier claims end up being paid pro rata, often resulting in payment of only pennies on the dollar.
In the MAP-21 act, Congress mandated that broker/freight forwarder trust funds consist of “assets readily available to pay claims without resort to personal guarantees or collection of pledged accounts receivable.” The final rule sets out a list of the acceptable asset types a BMC-85 trust may contain, which includes cash, ILCs issued by a Federally insured depository institution, and Treasury bonds. FMCSA has determined that these asset types are “readily available” because they are stable in value and can be easily liquidated within seven calendar days of an event that triggers a payment from the trust. Compliance with this provision will be required on January 16, 2026.
When a broker or freight forwarder’s available financial security falls below $75,000 the rule allows FMCSA to suspend its operating authority registration. That “available financial security” may fall below $75,000 because a broker or freight forwarder consents to a drawdown, or if a broker or freight forwarder does not respond to a valid notice of claim from a surety or trust provider, or if a claim against the broker or freight forwarder is converted to a judgment. If the available financial security falls below $75,000 and the broker or freight forwarder does not replenish funds within seven calendar days after notice from FMCSA, the agency will issue a notification of suspension of operating authority to the broker or freight forwarder. FMCSA intends to use its forthcoming Unified Registration System (URS) platform to receive information from surety providers, trustees, brokers, and freight forwarders and to administer FMCSA’s responsibilities regarding the immediate suspension of operating authority registration. Compliance with this provision will be required on January 16, 2025.
This rule also requires if the surety/trustee becomes aware that a broker or freight forwarder is experiencing some kind of financial failure or insolvency, it must notify FMCSA and initiate cancellation of the financial responsibility. FMCSA will then publish a notice of failure in the FMCSA Register. If the broker or freight forwarder subsequently cures the default, and the surety company or financial institution reinstates the bond or trust or the broker or freight forwarder obtains a new bond or trust, the FMCSA will lift the suspension notice and update the FMCSA Register. Like the immediate suspension provision, FMCSA intends to use the forthcoming URS platform to receive information and carry out its own responsibilities under this provision. Compliance with this provision will be required on January 16, 2025.
Regarding enforcement authority, FMCSA is implementing the requirement in MAP-21 for suspension of a surety or trust fund provider’s authority in certain circumstances. The agency will 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. The new rule also adds monetary penalties and a statutorily mandated suspension in 49 Code of Federal Regulations (CFR) part 386, appendix B, for violations of the new requirements. Compliance with this provision will be required on January 16, 2025.
The new rule removes loan and finance companies from the list of providers eligible to serve as BMC-85 trustees, “because this type of institution is not subject to the rigorous Federal regulations applicable to chartered depository institutions or state regulations applicable to insurance companies.” Loan and finance companies will now be prohibited from offering BMC-85 trusts unless they get certification to operate as another type of financial institution that remains on the list of eligible providers. Compliance with this provision will be required on January 16, 2026.
A number of commenters on the proposed rulemaking wanted to see additional penalties beyond suspension of operating authority, but FMCSA said such penalties would exceed their authority. Many commenters complained that brokers often behave in various fraudulent ways such as operating under fake or stolen business information or as multiple businesses with different operating authority numbers. Another common complaint was the “double brokering” of loads where a motor carrier accepts a load from a broker and then transfers the load to another carrier who actually delivers it. In many instances, the carrier who completes the load does not receive payment for their services.
FMCSA responded that while it appreciates commenters for bringing up these issues, they are outside the scope of this rulemaking, as they do not specifically pertain to the issues presented in the NPRM. “Regarding the accusations of fraud, FMCSA is aware of increasing concerns in this area and is actively examining approaches to address the problems. FMCSA and DOT are also looking at new tools and practices to better enforce the existing regulations against companies engaging in fraud.” Be careful out there! If you need help, call (800) 805-0040.