The Federal Motor Carrier Safety Administration (FMCSA) has issued a Notice of Proposed Rulemaking (NPRM) to implement financial responsibility policies for freight brokers and freight forwarders. The proposed changes, FMCSA asserts, would benefit motor carriers when dealing with the small percentage of brokers and freight forwarders who do not meet their regulatory obligations and withhold payments to carriers.
Federal law requires brokers and freight forwarders to maintain financial security in the amount of $75,000. That amount increased from $10,000 for brokers in the 2012 MAP-21 (Moving Ahead for Progress in the 21st Century Act) infrastructure legislation and applied to freight forwarders for the first time. Brokers and freight forwarders commonly meet the $75,000 requirement through surety agreements or trust funds backed by other parties.
If a broker or freight forwarder improperly withhold payments for services, the motor carrier can submit claims to the financial responsibility provider who backs the surety or trust fund. While, FMCSA states, the average claim is $1,700, the total of claims submitted against one broker or freight forwarder may exceed $75,000. In that event, the financial responsibility provider may turn to the courts in what is called an “interpleader” action. The court then determines how much the carrier receives – usually just a share of the $75,000.
The FMCSA proposal attempts to address unscrupulous brokers and interpleader actions in several ways:
- FMCSA would require that the broker or freight forwarder be capable of making payments to motor carriers within seven business days. FMCSA then lists several types of assets, such as interests in real property, which typically cannot be sold or converted in that timeframe. The goal is to assure quick payments to motor carriers.
- Included in the FMCSA list of prohibited assets are second trust deeds, personal property and vehicles – assets that some states consider to be “illiquid,” not readily converted. Similarly, bonds not highly rated by a recognized rating organization could not be included in a brokers’ “assets readily available.”
- Next, FMCSA proposes to restrict the types of entities who can back a broker or freight forwarder surety or trust fund. Loan and finance companies would be removed from the entities eligible to serve in that capacity. Group surety bonds and group trust funds would also be prohibited – the financial backing must apply to a specific broker or freight forwarder to avoid interpleader actions.
- FMCSA proposes a new process for immediately suspending a broker or freight forwarder operating authority. If a broker’s or freight forwarder’s financial security experiences a “draw down” below $75,000, the funds must be replenished within seven business days or the operating authority will be immediately suspended. Sureties and trustees would also be required to report the bankruptcy or insolvency of a broker or freight forwarder.
- Finally, FMCSA would increase civil penalties for violation of these rules.
Brokers, freight forwarders, and their financial backers would have three years to make the changes proposed in the NPRM. Comments on the NPRM were originally due by March 6, 2023. However, on March 8, FMCSA announced it had extended the comment period until April 6, 2023.
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