FMCSA speeds up process to shut down non-paying brokers
It is now easier and faster for the Federal Motor Carrier Safety Administration (FMCSA) to shut down brokers who fail to pay motor carriers for services rendered.
The FMCSA has amended the financial responsibility rules for property brokers, making it easier for the FMCSA to suspend their operating authority.
The updated rules went into effect on January 16, 2024, to set new financial responsibility requirements for brokers and freight forwarders. When proposed, the agency expected a three-year period before the actual compliance date. The final rule moved up the compliance dates to:
- January 16, 2025: For provision regarding immediate suspension, financial failure or insolvency, and enforcement authority.
- January 16, 2026: For provision regarding assets readily available and entities eligible to provide trust funds for Form BMC–85 trust fund filings.
The agency says the intent of the rules is to “alleviate the effects of broker or trustee non-payment of claims.”
Five financial areas affected
When proposed in January 2023, the FMCSA intended to amend five areas of regulation:
- Readily available assets,
- Immediate suspension of broker and or freight forwarder operating authority,
- Surety or trust responsibilities in cases of broker and or freight forwarder financial failure or insolvency,
- Enforcement authority, and
- Entities eligible to provide trust funds.
While keeping the same focus areas, based on 340 unique comments, the FMCSA made several changes to the final rule compared to the proposal in addition to the expedited compliance dates.
Readily available vs. non-readily available assets
The FMCSA determined that cash, irrevocable letters of credit (ILCs) issued by a Federally insured depository institution, and Treasury bonds would constitute the acceptable categories of assets readily available.
However, other asset classes such as real estate were determined to be not sufficiently liquid, while stocks, non-Treasury bonds, and other securities involve significant risk to the investor, and therefore cannot be considered readily available.
When does available financial security fall below the required minimum?
After considering commenters concerns regarding the timing of when the available financial security falls below the required minimum, the agency decided that a bond or trust fund should be considered to have fallen below $75,000 when either:
- An actual drawdown occurs, or
- The surety provider or financial institution receives legitimate claims that have not been adequately addressed by the broker and will inevitably result in the bond or trust fund falling below the required level.
Adequate notification
The FMCSA added provisions to the regulations delineating the process for surety providers or financial institutions to notify FMCSA of changes to a broker’s or freight forwarder’s financial security status.
The notification must be made by an electronic written submission 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 the payment will be inevitable once the 60-day period for submission of claims has elapsed.
Time to respond to a claim
The administration specified a time period for brokers and freight forwarders to respond to a claim. After considering the suggestions proposed by the various commenters, the FMCSA determined that seven business days is appropriate.
However, the FMCSA will allow brokers or freight forwarders to cure a default after a suspension has been implemented.
It’s a costly process
The FMCSA estimates that the 10-year cost of the rule will total $5.5 million. However, the agency states 99% of the cost will be incurred by the federal government.
Key to remember
Brokers who fail to pay motor carriers for services rendered are the target of the new financial-responsibility rules. The rules make it easier and faster for the FMCSA to shut down brokers that face insolvency or do not have sufficient funds readily available.