FMCSA said assessing civil penalties for freight broker fraud is a convoluted process.
The Federal Motor Carrier Safety Administration has asked Congress to give the agency the statutory authority to assess civil penalties for unauthorized brokerage violations — both the double-brokering and fraud problems as well as a significant increase it has seen in household goods consumer complaints.
The report to Congress was in response to the Joint Explanatory Statement accompanying the 2023 Consolidated Appropriations Act, which required FMCSA to report on efforts to enforce regulations regarding unlawful broker activities.
The agency noted that a 2019 DOT Administrative Law Judge decision, Darlene Riojas et al., put a hamper on its enforcement efforts.
That decision found that the FMCSA does not have the statutory authority to assess civil penalties for violations of U.S. code regarding regulation of motor carriers, brokers, and freight forwarders. Instead, the FMCSA now must go through the U.S. District Court to pursue civil penalties, including the broker and household goods consumer protection regulations.
“Unless a regulated entity that violates FMCSA’s commercial regulations voluntarily resolves its noncompliance, FMCSA must refer cases to DOJ for enforcement of those regulations,” the agency said in its report.
“The need to refer cases to DOJ for the assessment of civil penalties for violations of commercial regulations creates a significant barrier to enforcement, including for unauthorized brokerage violations.”
FMCSA saw household goods consumer complaints more than double between 2019 and 2021 (receding in 2022 and 2023 but still well above 2019 levels), coinciding with the start of the Covid-19 pandemic and the impact of the Riojas decision.
FMCSA’s inability to assess civil penalties administratively not only for unauthorized brokerage, but also for these HHG violations, has significantly undermined its ability to combat HHG moving and brokering fraud, according to the report.
How the Riojas Decision Changed the Way FMCSA Enforces Broker Regulations
Prior to the Riojas decision, FMCSA assessed civil penalties for unauthorized brokerage violations via Notices of Claim (NOCs). Between 2014 and 2019, FMCSA issued approximately 20 NOCs for unlawful brokerage violations.
Since the Riojas decision in 2019, however, FMCSA has two alternative enforcement mechanisms available for unauthorized brokerage enforcement: Notices of Violation and Letters of Probable Violation.
Notices of Violation: FMCSA may issue an NOV to a non-registered entity performing brokerage operations without broker operating authority registration. The NOV will state the violations and the corrective actions the broker must take to comply.
The broker has 30 days to acknowledge receipt of the NOV and submit proof of the corrections. No further action is needed if the broker takes sufficient corrective action within 30 days of the NOV issue date. FMCSA does not propose civil penalties as part of an NOV.
Letter of Probable Violation: An LOPV identifies areas of non-compliance and proposes a civil penalty. The agency said the LOPV can encourage brokers and carriers to enter into settlement arrangements and take corrective actions. Once the LOPV is issued, the broker has 30 days to respond.
If the broker fails to respond or its response is insufficient, FMCSA may refer the case to DOJ for judicial enforcement of FMCSA’s commercial regulations, including the assessment of civil penalties, in federal court.
Recent Efforts by FMCSA to Address Broker Non-Compliance
FMCSA did outline actions it has taken recently to address broker non-compliance.
The agency completed a rulemaking on broker financial responsibility in 2023, finalizing regulations regarding:
- The composition of broker trust funds.
- Immediate suspension of broker/freight forwarder operating authority registration.
- Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency.
- FMCSA enforcement authority.
- Entities eligible to provide trust funds for broker financial responsibility.
A related issue has been addressing household goods scams. FMCSA’s 2023 Operation Protect Your Move was in response to a significant uptick in complaints against movers and brokers for extorting exorbitant additional charges from consumers.
In addition, in 2023, FMCSA conducted HHG broker investigations in Nevada, New Jersey, New York, and Florida, reviewing 35 HHG and property brokers in total. The agency found 166 violations, closed 544 complaints, and issued 17 Letters of Probable Violation. The agency also conducted four property broker investigations in New York. FMCSA expects to continue its expanded broker enforcement efforts in 2024.
Is Unlawful Brokerage a Safety Issue?
FMCSA said it’s still assessing the relationship between motor carrier safety and unlawful brokerage.
While the agency has received multiple expressions of concern from stakeholders regarding fraud related to “double brokering,” it said it doesn’t have the data to quantify or confirm a safety impact.
“The agency does acknowledge an association between motor carriers with poorer safety performance and carriers that lack a verifiable ‘brick and mortar’ principal place of business,” it said in its report.
FMCSA has received comments and other information asserting that use of a virtual principal place of business is more common among entities that engage in unauthorized brokerage.
“As brokers do not typically engage in the actual transportation of goods, however, the direct safety impact of failing to register with FMCSA as a broker is unclear.”
FMCSA said it is considering additional research into the relationship between motor carrier safety and unlawful brokerage.
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