Trucking companies are set to benefit from increased protection against unpaid claims owed by brokers, thanks to a new rule recently issued by the Federal Motor Carrier Safety Administration (FMCSA).
The rule, initially proposed earlier this year and officially finalized on Nov. 15, introduces amendments to regulations regarding broker and freight forwarder responsibility. Its implementation is scheduled for Jan. 16, 2024.
“This final rule will result in benefits to motor carriers resulting from a decrease in the claims against brokers that go unpaid,” FMCSA stated. “FMCSA will immediately suspend brokers that do not respond following a drawdown on their financial security. Such brokers will no longer be able to accrue liabilities that they do not plan, or lack the ability, to pay.”
The agency is intensifying scrutiny in five key areas of broker financial responsibility, along with initiating repercussions for noncompliance. These areas include assets readily available, immediate suspension of broker/freight forwarder operating authority, surety or trust responsibilities in cases of financial failure or insolvency, enforcement authority, and eligibility criteria for entities providing trust funds for broker trust fund filings known as form BMC-85.
In terms of assets readily available, the final rule designates cash, irrevocable letters of credit issued by federally insured depository institutions, and Treasury bonds as acceptable categories of assets in broker/freight forwarder trust funds for meeting claims payments to carriers.
“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,” the agency said. “Other asset classes such as real estate are not sufficiently liquid, while stocks, non-Treasury bonds, and other securities involve significant risk to the investor, and therefore none of these asset classes can be considered readily available.”
The compliance date for this provision is set for Jan. 16, 2026.
Concerning the immediate suspension of broker operating authority, the FMCSA has outlined that when a broker or freight forwarder’s available financial security drops below $75,000, the agency may suspend its operating authority registration.
“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,” the agency said. “Such notification must be made in writing, by electronic means, within two business days of either a payment from the bond or trust that causes the available financial security to fall below $75,000 or a determination by the surety provider or financial institution that such payment will be inevitable once the 60-day period for submission of claims has elapsed.”
The compliance date for this provision is set for Jan. 16, 2025.
In cases of broker failure or insolvency, surety providers or financial institutions are granted the right to cite financial failure or insolvency as grounds for canceling a surety bond or BMC-85 trust agreement.
FMCSA defines financial failure or insolvency as “any payment made or other default pursuant to … the regulatory provision that addresses the situations under which a broker or freight forwarder’s operating authority may be immediately suspended, which the broker or freight forwarder does not cure” in accordance with the rules.
The compliance date for this provision is also Jan. 16, 2025.
Regarding enforcement authority, the agency will provide notice of suspension to the surety/trust fund provider in identified circumstances, allowing 30 calendar days for a response before issuing a final agency decision. Monetary penalties of $12,882 per violation are added, and the surety/trust fund provider becomes ineligible to provide broker financial security for three years.
The compliance date for this provision is set for Jan. 16, 2025.
Lastly, entities eligible to provide trust funds for BMC-85 filings will no longer include loan and finance companies.
“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,” according to FMCSA. “Loan and finance companies will now be prohibited from offering BMC-85 trusts unless they obtain certification to operate as another type of financial institution that remains on the list of eligible providers.”
The compliance date for this provision is set for Jan. 16, 2026.
The Transportation Intermediaries Association (TIA), representing truck brokers, highlighted in comments that adjustments to broker financial backing requirements were necessary, and the implementation of new oversight is deemed “long overdue.”
“TIA petitioned the FMCSA in 2014 to move forward with rulemaking on the key provisions of the law as they related to broker and freight forwarder financial instruments and implementation provisions,” TIA said. “This is a huge step towards addressing potential financial fraud and making sure that funding is available to protect motor carriers and brokers.”
The Owner-Operator Independent Drivers Association (OOIDA) advocated for stronger oversight within several provisions when the rule was initially proposed.
“[The final rule 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,” OOIDA said. “We encourage FMCSA to continue to move in the right direction by expediting their rulemaking on OOIDA’s 2020 petition to enhance broker transparency. Truckers shouldn’t have to wait an additional year for the agency to ensure brokers are following federal regulations.”
Source: Freightwaves
