Small Brokers Take Issue with New $75,000 Bond Requirement
September 06, 2012
The ink on the new highway bill is hardly dry, yet one transportation group already is pushing for an amendment.
The Association of Independent Property Brokers & Agents is lobbying to repeal the $75,000 bond requirement for brokers and freight forwarders that's in the law Congress passed in June.
The provision is due to go into effect next July. Between now and then, the Federal Motor Carrier Safety Administration must complete a rulemaking to implement aspects of the law.
Meanwhile, AIPBA is orchestrating a campaign against the provision and attacking one of the organizations that negotiated it, the Transportation Intermediaries Association. The other major participants in the drafting of the law were the Owner-Operator Independent Drivers Association and American Trucking Associations.
James Lamb, president of AIPBA, says the bond puts an unfair burden on small brokers.
"We believe this legislation, drafted by (TIA), was specifically written with the intent to eliminate small brokers from the market so that big brokers can take control of the market," he wrote in an Aug. 22 commentary.
"Congress was tinkering with bond levels without expertise" when it wrote this provision, Lamb said in a recent interview. "It should be deferring to the (Federal Motor Carrier Safety Administration)."
Lamb acknowledged that the legislation was designed to take on the problem of fly-by-night brokers who walk away from their obligations, but he downplayed the issue.
"From time to time there is a problem with brokers not meeting their responsibilities," he said.
AIPBA's effort has no chance of success on Capitol Hill any time soon. The group does not have a champion for its bill, it faces the concerted opposition of TIA and the other interests that negotiated the broker provision, and Congress is focused on much bigger issues (2013 appropriations, the election and the Fiscal Cliff, to mention a few).
But this discord is likely to continue as FMCSA moves toward implementation.
Compromise in Washington
The $75,000 bond (up from the former $10,000 requirement) represents a hard-earned compromise between TIA and OOIDA.
For years OOIDA had been complaining to FMCSA and Congress that the $10,000 bond was far too low. In 2004 the group proposed that the agency raise it to as much as $500,000.
TIA was on the opposite side, and the conflict led to an ever-increasing and expensive 'arms race' between the groups, said TIA President Robert Voltmann in a recent commentary posted on the group's website.
"Rather than just keep fighting, TIA Board members and staff met with OOIDA leadership," he said. "We discussed the things that drove each other's members crazy."
From these discussions emerged the provision that's in the new highway law.
"No organization got everything they wanted; each had to give up things they wanted. We did what has become unusual in Washington: We compromised," Voltmann said.
The bond increase is just one of a number of provisions designed to fight fraud, he said.
The Bond Provision
Under the law, each carrier, broker and freight forwarder will get a new authority number. Companies will no longer be able to have the same number for their carrier and broker divisions, Voltmann said.
"This means that if a carrier uses their carrier number and re-brokers the freight, they are still the carrier on this load with cargo liability."
The law also says that a carrier needs a separate broker authority, and a bond, to put someone else's freight on someone else's truck, he said.
Responsibility for the bond rests with the company that issues it, Voltmann said.
"Broker sureties will no longer be able to be issued based on receivables. This all means that the broker surety companies will become the enforcers and gate keepers or face civil action. If they say that a broker has a bond, they are responsible for that bond and will no longer be able to duck and dodge as some have in the past."
He also noted that the liability for those who have a license and a bond is limited at $75,000, but anyone operating without a license or bond has unlimited liability.
The law also says that the officers of broker and forwarder companies must have at least three years of experience or prove that they understand the rules. Voltmann's take is that this will gradually improve the level of professionalism in the industry.
TIA did not support the move to raise the bond, Voltmann said. "We still believe that the best policy would be to have no bond, but that message was not acceptable to Congress, the carriers, owner-operators, or shippers."
Another participant in the debate is Daniel Larson, president and COO of Pacific Financial Association, which provides surety instruments to brokers. In a recent commentary published in an industry newspaper, Larson said the higher bond will force small brokers to become agents for larger brokers that can afford the collateral.
But Larson believes FMCSA has room to interpret the law in a way that can soften the blow.
"I do think that the rulemaking process can make allowances in how (the agency) interprets parts of the statute, so that it could have a positive effect on some of the smaller brokers in trying to obtain $75,000 sureties," he said in an interview.
Voltmann's view is that if a company isn't financially sound enough to qualify for the higher bond, then it shouldn't be handling the money.
"Will this force some small, underfunded brokerages to become agents for someone else who is better funded? Absolutely, and absolutely it should," he said in an interview.
Some aspects of the new broker and forwarder requirements may show up in FMCSA's new Unified Registration System, which is due to be made public next February. The agency has not said when it will propose other rules.