Tomorrow, the Federal Motor Carrier Safety Administration (FMCSA) will finalize a new rule to increase financial responsibly requirements in order to crack down on unscrupulous freight brokers.
In a Final Rule to be published in the Federal Register on November 16, 2023, the FMCSA will toughen up financial security rules to better protect truckers from brokers who fail to pay.
“This rule will result in benefits to motor carriers. FMCSA is aware that some brokers choose to withhold payment to motor carriers for services rendered. Motor carriers can then submit claims to the financial responsibility provider to receive payment … 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.
The FMCSA estimates that about 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 per claim submitted.
The Final Rule will go into effect January 16, 2024.
Specifically, the rule will change financial responsibility requirements for brokers of property and freight forwarders in five separate areas:
- Assets readily available. Current law requires 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 updates the definition of assets readily available to those that are stable in value and can be easily liquidated within 7 calendar days of an event that triggers a payment from the trust.
- Immediate suspension of broker/freight forwarder operating authority. Perhaps the most significant change, this rule would allow the FMCSA to suspend a broker or freight forwarder’s operating authority registration when their available financial security falls below $75,000. The available financial security could occur 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 7 calendar days after notice from FMCSA, the Agency will issue a notification of suspension of operating authority to the broker or freight forwarder.
- Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency. This rule requires that if the surety/trustee becomes aware that a broker or freight forwarder is experiencing financial failure or insolvency, it must notify FMCSA and initiate cancelation 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, FMCSA will lift the suspension notice and update the FMCSA Register.
- Enforcement authority. The Rule establishes FMCSA authority for the suspension of a surety or trust fund provider’s authority in certain circumstances.
- Entities eligible to provide trust funds for brokers and freight forwarders. n this rule, FMCSA removes loan and finance companies from the list of providers eligible to serve as trustees, because 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. Loan and finance companies will now be prohibited from offering trusts unless they obtain certification to operate as another type of financial institution that remains on the list of eligible providers.
The FMCSA published a Notice of Proposed Rule Making (NPRM) on this rule on January 5, 2023.