FMCSA Proposes Financial Security Requirements for Freight Forwarders

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The Federal Motor Carrier Safety Administration has issued a proposed rule that establishes financial security requirements for freight forwarders, taking further action on legislation that stretches back more than a decade.

The rule defines freight forwarders as “primarily those entities that assume responsibility for the transportation from the place of receipt to the place of destination, or use any part of the transportation for a carrier.”

The proposal calls for the implementation of certain requirements under the Moving Ahead for Progress in the 21st Century Act signed into law in 2012. Previously, FMCSA implemented a MAP-21 requirement to increase the financial security amount for brokers from $25,000 to $75,000 for household brokers and from $10,000 to $75,000 for all other property brokers. For the first time, financial security standards for freight forwarders also were established.

The agency said it has not decided whether to propose regulations dealing specifically with household goods brokerage or freight forwarding, stressing it is “most useful to continue to address moving fraud through other means.”

In the proposed rule, published in a Jan. 5 Federal Register announcement, the agency outlines regulations in five separate areas:

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

The proposal said that the most workable standard for determining when available financial security has fallen below $75,000 is when an actual draw down has taken place.

“It would then be very clear to both brokers and freight forwarders that if they don’t quickly replenish their trust funds or surety bonds, that their operating authority registration will be suspended,” the proposal said. “Based on [this] proposal, FMCSA would suspend the operating authority registration of a broker or freight forwarder only in the event of a draw down on the bond or trust.”

FMCSA said it would give brokers or freight forwarders seven business days to contest any immediate suspension action before it took effect, in order to meet constitutional due process concerns.

FMCSA logo

“FMCSA will attempt through this rulemaking, consistent with MAP-21, to suspend the operating authority registration of these delinquent brokers before the unpaid claims exceed the value of the brokers’ financial responsibility instruments,” the proposal said.

“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.”

“The interpleader process can be costly and time consuming for motor carriers, and generally results in motor carrier claims being paid pro rata, depending on the number of claims against the broker bond or trust fund,” the proposal said. “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.”

The agency said its best estimate is that approximately 1.3% of brokers (approximately 440 in 2022) would experience a draw down on their surety bond or trust fund within a given year, with average claim amounts of approximately $1,700 per claim submitted.

FMCSA also proposed 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 in the proposal defined financial failure or insolvency as “bankruptcy filing or state insolvency filing.” The proposal also requires that if the surety/trustee is notified of any insolvency of the broker or freight forwarder, it must notify FMCSA and initiate cancellation of the financial responsibility.

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In comments on the proposal, American Trucking Associations, the Owner-Operator Independent Drivers Association and the Transportation Intermediaries Association voiced general support for the agency’s plan to implement the rulemaking.

In a statement provided Jan. 5 to Transport Topics, TIA vice president of government affairs Chris Burroughs said, “TIA supports the rulemaking process and looks forward to submitting comments to the docket. For too long fraudulent trust fund providers and bad actors have continued to plague the industry, which continues to give brokers a bad name. The NPRM released today is a next step toward vital implementation to put a stop to this. This work didn’t happen overnight. TIA worked closely with Congress back in 2012 on the passage of MAP-21 and the inclusion of the language on the broker bond and trust funds. After the bill was signed into law, several areas required implementation and clarification. To that end, TIA petitioned the FMCSA in 2014 to initial rulemaking on these important issues. We will continue to advocate for brokers and the good of the industry on this important issue.”