FMCSA Goes After Unscrupulous Brokers With Proposed Rules

The Federal Motor Carrier Safety Administration has proposed changes to freight broker and freight forwarder financial responsibility requirements, addressing the problem of brokers that don’t pay motor carriers.

Federal law requires brokers and freight forwarders to maintain financial security for circumstances where they don’t pay carriers. FMCSA explained in its Jan. 5 notice of proposed rulemaking that when brokers improperly withhold payment to motor carriers for services rendered, carriers can submit claims to the financial responsibility provider in an attempt to receive payment.

The Moving Ahead for Progress in the 21st Century Act (MAP-21) highway bill, passed in 2012, required FMCSA to increase the broker financial responsibility from $10,000 ($25,000 for household goods brokers) to $75,000 and extended those requirements to freight forwarders for the first time.

 

If the financial responsibility provider has received claims against an individual broker that exceed $75,000, the financial responsibility provider will often submit the claims to a court in an “interpleader action” to determine how to allocate the broker bond or trust fund. This process can be costly and time-consuming and generally results in carriers only getting a portion of their claims.

But MAP-21 also required the agency to address other aspects of these financial responsibility rules, including more transparency and better enforcement.

In May 2016, FMCSA gathered stakeholders for an informal roundtable discussion on broker/freight forwarder financial responsibility. In 2018, FMCSA published an advance notice of proposed rulemaking (83 FR 48779) seeking input.

In response to that ANPRM, one trade organization commented that the agency must reject the fiction that considers a bond to be in effect until a claim is actually paid on the bond, which means the broker can continue to conduct business even if there is effectively no longer any financial security in place. Under this practice, sureties wait to confirm that they have collected all the claims triggered by the broker before making any payout. By then, the pro-rata payouts from the bond to motor carrier claimants amount to cents on the dollar.

A representative of a motor carrier reported that it had not been paid for a few loads by freight brokers and could collect only about 10 percent of what was due because there were too many claims. Because the freight brokers are permitted to work for 45 days after unpaid claims are reported, they can keep racking up money owed to carriers, sometimes never intending to pay the carriers at all.

A surety provider submitted an example of a brokerage that continued to book 27 loads with a total value of more than $35,000 after cancellation had been requested. Another surety provider submitted an example of a logistics company that had accumulated $945,739 in unpaid motor carrier claims after paying out the full $75,000 BMC-85 Trust.

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

Proposed Changes to Broker Financial Responsibility Rules

FMCSA said that “a small but significant population of brokers” fail to pay legitimate claims and are non-responsive to motor carriers and BMC-84/85 providers and continue accumulating claims until their FMCSA operating authority registration is revoked. FMCSA will attempt through this rulemaking to suspend the operating authority registration of these delinquent brokers before the unpaid claims exceed the value of the brokers' financial responsibility instruments.

The FMCSA’s notice of proposed rulemaking aims to address these types of situations with changes to the regulations in five areas:

1. Assets readily available
2. Immediate suspension of broker/freight forwarder operating authority
3. Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency
4. Enforcement authority.
5. Entities eligible to provide trust funds for form BMC-85 trust fund filings.

Assets Readily Available

The agency proposes allowing brokers or freight forwarders to meet the MAP-21 requirement to have “assets readily available” by maintaining trusts that meet certain criteria, including that the assets can be liquidated within seven calendar days of the event that triggers a payment from the trust.

Immediate Suspension of Broker/Freight Forwarder Operating Authority

The NPRM proposes 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.

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.

FMCSA is asking for more data that shows the amount of nonpayment that could be avoided through implementation of the immediate suspension provision.

Surety or Trust Responsibilities

FMCSA proposes to define “financial failure or insolvency” as bankruptcy filing or state insolvency filing.

This proposal requires that if the surety/trustee is notified of any insolvency of the broker or freight forwarder, it must notify FMCSA and initiate cancelation of the financial responsibility.

In addition, FMCSA proposes to publish a notice of failure in the FMCSA Register immediately.

Enforcement Authority

To implement MAP-21's requirement for suspension of 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. The agency also proposes to add penalties for violations of the new requirements.

Entities Eligible To Provide Trust Funds

FMCSA proposes to remove the rule allowing loan and finance companies to serve as BMC-85 trustees.

FMCSA has decided not to address the following issues that were included in its 2018 advance notice of proposed rulemaking, note the transportation attorneys at Scopelitis, Garvin, Light, Hanson & Feary:

• Allow use of group surety bonds or trust funds
• Set a mandatory response time in which brokers or forwarders must respond to claims
• Propose different regulations related to regulated household goods brokers or forwarders 

Comments must be received on or before March 6, 2023 and can be submitted through the Federal eRulemaking Portal.