Transportation Executive Summary: FMCSA Announces Rule Making on Brokers and Freight Forwarders
Recently, the Federal Motor Carrier Safety Administration (FMCSA) issued a notice of proposed rulemaking (NPRM) to implement financial security requirements on brokers and freight forwarders on Jan. 5, 2023. The materials can be accessed at this website.
Currently, broker and freight forwarders are required to maintain a $75,000 surety bond to provide security for the payment of freight charges by motor carriers. If the claims against a broker exceed $75,000, the financial responsibility provider will submit the motor carrier claims to a court in an interpleader action to determine how the trust should be allocated amongst various motor carriers which can be a costly and time-consuming process. The proposed changes are intended to address situations where a motor carrier provides transportation services but the broker or freight forwarder fails to pay what is owed. By implementing these changes, the FMCSA’s intent is to “mitigate the need to initiate interpleader proceedings and alleviate the concern of broker non-payment of claims.” Consequently, the FMCSA is proposing five new changes.
The first proposed change allows for brokers and freight forwarders to maintain trusts that meet certain criteria as allowed under the Moving Ahead for Progress in the 21st Century Act (MAP-21). The Act requires “assets readily available” to meet claims (which is a change from the current requirement that only a broker or freight forwarder provide evidence of a trust and does not specify what assets the trust must maintain). MAP-21 may be accessed on this website.
The proposal states that these trusts must consist of assets that can be liquidated within seven days of an event that triggers payment from the trust. Prohibited assets such as real property, intercorporate agreements of guarantees, internal letters of credit, and illiquid assets cannot be maintained under the trust.
The second proposed change is a different process for intermediate suspension of a broker or freight forwarder’s operating authority. If there is a drawdown on a broker or freight forwarder’s surety bond or trust, the FMCSA will provide notice to the broker or freight forwarder that it will have seven days to replenish the surety bond or trust. If the broker or freight forwarder fails to replenish the surety bond or trust within seven days, the FMCSA will immediately suspend its operating authority via a second notice. A drawdown would be defined as one of the following:
1. A broker or freight forwarder consents to the drawdown and the instrument value drops below $75,000.
2. A broker or freight forwarder doesn’t respond to adequate notice of a claim by a surety or trust fund provider, the surety or trust provider pays the claim, and the instrument, and the instrument value drops below $75,000.
3. A claim is reduced to a judgment, the surety or trust fund provider pays the judgment, and the instrument value drops below $75,000.
The third proposed change relates to responsibilities in cases of broker/freight forwarder financial failure or insolvency. The FMCSA is proposing to define financial failure or insolvency as a bankruptcy filing or state insolvency filing. Once the surety/trustee has been notified of a broker or freight forwarder’s insolvency, it is required to notify the FMCSA, which also satisfies a surety/trustee’s obligation under MAP-21 to publicly advertise for claims.
The fourth proposed change refers to the enforcement authority that FMCSA has. Under MAP-21, the FMCSA has authority to suspend noncompliant surety providers from (1) providing brokers or freight forwarders financial responsibility for three years, (2) assess penalties against surety providers, and (3) sue noncompliant surety providers in federal court. Currently, the FMCSA is proposing to implement MAP-21’s surety provider suspension authority provision by providing notice of suspension to the surety or trust fund provider and allowing 30 calendar days for the surety or trust provider to respond before the agency makes a final decision.
The fifth and final proposed change is related to the entities eligible to provide trust funds for BMC-85 Filings. The new proposal removes the rule allowing loan and finance companies to serve as BMC-85 trustees, due to feedback that loan and finance companies are not adequately regulated.
For more information
Contact John F. Fatino for more information about trucking and transportation regulatory matters at 515-288-6041. Taylor J. Thomas, Drake Law School J.D. candidate, assisted in the preparation of these materials.