WASHINGTON — Trucking companies should be better protected against unpaid claims that are due them from brokers under a new rule issued by the Federal Motor Carrier Safety Administration.
The rule, proposed earlier this year and made final on Wednesday, amends regulations addressing broker and freight forwarder responsibility.
“This final rule will result in benefits to motor carriers resulting from a decrease in the claims against brokers that go unpaid,” FMCSA stated.
“FMCSA will immediately suspend brokers that do not respond following a drawdown on their financial security. Such brokers will no longer be able to accrue liabilities that they do not plan, or lack the ability, to pay.”
The rule becomes effective Jan. 16, 2024.
The agency is tightening oversight in five areas of broker financial responsibility as well as consequences for noncompliance: 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, and entities eligible to provide trust funds for broker trust fund filings known as form BMC-85.
Assets readily available
The final rule says that cash, irrevocable letters of credit issued by a federally insured depository institution and Treasury bonds are acceptable categories of assets readily available in broker/freight forwarder trust funds from which to pay claims to carriers.
“FMCSA has determined that these asset types are readily available because they are stable in value and can be easily liquidated within 7 calendar days of an event that triggers a payment from the trust,” according to the agency.
“Other asset classes such as real estate are not sufficiently liquid, while stocks, non-Treasury bonds, and other securities involve significant risk to the investor, and therefore none of these asset classes can be considered readily available.”
Compliance date for this provision: Jan. 16, 2026.
When a broker or freight forwarder’s available financial security falls below $75,000, FMCSA may suspend its operating authority registration.
The agency explained that a broker or freight forwarder’s available financial security may fall below $75,000 because it consents to a drawdown, or if it 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.”
In response to comments filed in the proposed rule, FMCSA added provisions detailing the process for surety providers or financial institutions to notify the agency of changes to a broker’s or freight forwarder’s financial security status.
“Such notification must be made in writing, by electronic means, within two business days of either a payment from the bond or trust that causes the available financial security to fall below $75,000 or a determination by the surety provider or financial institution that such payment will be inevitable once the 60-day period for submission of claims has elapsed.”
Compliance date for this provision: Jan. 16, 2025.
Surety/trust responsibilities in broker failure or insolvency
Surety providers or financial institutions may cite financial failure or insolvency of the broker or freight forwarder as grounds for canceling a surety bond or BMC-85 trust agreement when the provider or institution either makes a payment against the bond or trust fund or expects to make a payment after aggregating multiple claims.
In the new rule, FMCSA defines financial failure or insolvency as “any payment made or other default pursuant to … the regulatory provision that addresses the situations under which a broker or freight forwarder’s operating authority may be immediately suspended, which the broker or freight forwarder does not cure” in accordance with the rules.
If the surety/trustee becomes aware that a broker or freight forwarder is experiencing financial failure or insolvency, it must notify FMCSA and initiate cancellation of the financial responsibility, and FMCSA will publish a notice of failure.
Compliance date for this provision: Jan. 16, 2025.
Enforcement authority
In suspension circumstances identified by FMCSA, the agency will first provide notice of the suspension to the surety/trust fund provider followed by 30 calendar days for the surety or trust fund provider to respond before a final agency decision is issued. The agency also adds monetary penalties of $12,882 for each violation, and the surety/trust fund provider will be ineligible to provide broker financial security for three years.
Compliance date for this provision: Jan. 16, 2025.
Entities eligible to provide trust funds for BMC-85 filings
FMCSA is removing loan and finance companies from the list of providers eligible to serve as BMC-85 trustees.
“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,” according to FMCSA. “Loan and finance companies will now be prohibited from offering BMC-85 trusts unless they obtain certification to operate as another type of financial institution that remains on the list of eligible providers.”
Compliance date for this provision: Jan. 16, 2026.
The Transportation Intermediaries Association, which represents truck brokers, pointed out in comments filed earlier this year that adjustments to broker financial backing requirements were required following a law passed in 2012, and that getting new oversight in place is “long overdue” and continues to be necessary.
“TIA petitioned the FMCSA in 2014 to move forward with rulemaking on the key provisions of the law as they related to broker and freight forwarder financial instruments and implementation provisions,” TIA told FreightWaves in a statement commenting on the final rule.
“This is a huge step towards addressing potential financial fraud and making sure that funding is available to protect motor carriers and brokers.”
The Owner-Operator Independent Drivers Association, which pushed for stronger oversight within several of the provisions when the rule was proposed, called the final rule “a step in the right direction to enhance oversight of broker financial responsibilities as we continue to work with partners to fight for increased broker transparency and the elimination of broker fraud,” the group wrote in a statement to FreightWaves.
“We encourage FMCSA to continue to move in the right direction by expediting their rulemaking on OOIDA’s 2020 petition to enhance broker transparency. Truckers shouldn’t have to wait an additional year for the agency to ensure brokers are following federal regulations.”
Related articles:
Click for more FreightWaves articles by John Gallagher.
Credit: Source link
