Beefing Up the Bond

Todd Dills | June 01, 2012

 

Claims filed against a bad broker sometimes exceed over $100,000, though only $10,000 is required for bonding.
Claims filed against a bad broker sometimes exceed over $100,000, though only $10,000 is required for bonding.

Small brokers oppose proposed regs to increase the minimum bond to $100,000 and add other owner-operator protection.

The high-profile case of fraudulent freight middleman Kulwant Singh Gill stunned many for its sheer brazenness. In March, Gill was sentenced to 11 years in prison and ordered to pay restitution to his carrier victims. In the wake of the case, debate over broker fraud got some new legs.

A big part of that debate is H.R. 2357, or the Fighting Fraud in Transportation Act, introduced in Congress last year. It’s been included this year in attempts at a multi-year transportation reauthorization bill in the House and Senate. The measure would raise the broker surety bonding minimum requirement from $10,000 – a level that hasn’t been changed since the late 1970s – to $100,000.

Moreover, it would impose new requirements on brokers and freight forwarders and the financial services companies that back them. At press time, the two-year MAP-21 Senate legislation that included the bond hike was in a House-Senate conference committee. There, it would be combined with a House-approved temporary extension of current funding levels. New initiatives, like the bond increase, might not survive the committee compromise.

Supporters of the hike, including the Owner-Operator Independent Drivers Association and the Transportation Intermediaries Association, which represents large and some smaller brokers, say the increased bond would make it more difficult for irresponsible operators to enter the business.

New regulatory requirements would also help ensure prompt payment to owner-operators who utilize brokers. Specifically, surety providers would be required to pay claims no later than 30 days after the 60-day period for submission of claims. They would also have to post public notices of claims and to notify the Federal Motor Carrier Safety Administration in advance of any pending bond cancellation.

The U.S. government would be equipped with the power to take civil actions with penalties against brokers, freight forwarders or surety providers who violate the law.

Detractors object to the cost of higher bonds, roughly $3,000 to $5,000 more for a financially secure operation per year to secure $100,000 coverage. They believe it would kill some legitimate small brokerages. The bond hike would go much further than compensating for inflation – $10,000 in 1980 dollars is roughly $26,000 today.

“Every day we hear from truckers who have been cheated by bad brokers out of compensation for hauling a load,” OOIDA says in a policy paper. “Often when we file a claim against a broker’s surety bond, $150,000 or more of claims have already been filed against the $10,000 bond.” Claims filed in excess of the minimum bond amount are often never paid.

Today’s broker regulatory system “was created when there was an Interstate Commerce Commission and there were fewer than 100 brokers in the country,” says OOIDA Executive Vice President Todd Spencer. “Deregulation opened the door for anyone to do anything they chose to in trucking, and the lack of any real effective oversight of brokers has created an opportunity that many have taken full advantage of to exploit the system to short truckers.”

All too commonly, he adds, brokers offer shippers and truckers “too-good-to-be-true rates” with no intention to pay. He asks, “Is it unreasonable to expect a service provider – a regulated, authorized entity in the motor carrier industry – to have at least the financial security to ensure $100,000 worth of payments to motor carriers?”

Despite the harmony suggested by the bond-increase measure’s mutual support from OOIDA and TIA – the nation’s most prominent broker association – debate on the issue hasn’t exactly been warm and fuzzy.

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