Motor carriers have new protections against broker and freight forwarder fraud. The Federal Motor Carrier Safety Administration issued a final rule on broker and freight forwarder financial responsibilities with the aim of alleviating the effects of broker or trustee non-payment of claims.
FMCSA says it listened closely to motor carrier and trucking association concerns and proposals found in the Notice of Proposed Rulemaking (NPRM) when making the changes to how it regulates brokers.
Federal law requires brokers and freight forwarders to maintain financial security in the amount of $75,000. In the final rule, FMCSA declined to increase that amount.
Brokers and freight forwarders commonly meet the $75,000 requirement through surety agreements or trust funds backed by other parties. The final rule makes significant changes in ways assets may be used to meet the $75,000 security amount and which types of entities can serve as financial backers to brokers and freight forwarders.
In the NPRM, FMCSA had proposed a list of prohibited assets which could not be considered “assets readily available” to meet motor carrier claims because those assets were not secure, fluctuated in value, or were not convertible in a timely manner. In the final rule, however, FMCSA agreed with many commenters that it was better to state the list of “assets readily available” in an affirmative manner. This new approach prevents any future assertions that an unlisted asset somehow met the standard. The final rule states that the only assets which can be claimed are cash, Irrevocable Letters of Credit issued by a federally insured depository institution, and Treasury bonds.
In line with the NPRM, FMCSA removed loan and finance companies from the entities eligible to serve as a financial backer, known formally as a “BMC-85 trustee,” of a broker or freight forwarder. The agency noted that loan and finance companies are not depository institutions and are not regulated by the federal depository regulators or an equivalent state regulator. They are also generally not subject to a level of state regulation comparable to insurance companies.
The final rule retained the FMCSA suspension of a broker/freight forwarder’s operating authority when its available financial security falls below $75,000 and the broker or freight forwarder fails to replenish funds within seven calendar days. Sureties and trustees must also report if a broker or freight forwarder enters bankruptcy or becomes insolvent. FMCSA will establish a website, using the Unified Registration System platform, to facilitate communication about broker/freight forwarder insolvencies and suspensions.
Lastly, the final rule adjusted the implementation timeline for these changes. FMCSA decided to reduce the implementation period from three years to one year after the effective date of the final rule for the immediate suspension, financial failure or insolvency, and enforcement authority provisions of the rulemaking. FMCSA also reduced the implementation period from three years to two years for the assets readily available and entities eligible to provide trust funds for Form BMC-85 trust fund filings provisions.
This final rule becomes effective Jan. 16, 2024.
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