Beefing Up the Bond

Todd Dills | June 01, 2012

A group representing small brokers, the Association of Independent Property Brokers and Agents, believes $100,000 is too high. Its “Open Letter to OOIDA,” published on the association’s website after the introduction of H.R. 2357 last year, pleads with OOIDA members to consider the plight of small brokers.

One proposed new regulation would help ensure prompt payment to owner-operators who utilize brokers.

“If the bond were to be drastically increased as proposed,” the letter reads, “small and mid-sized property brokers would not be able to afford the premium and/or the cash collateral requirements that would be imposed by surety companies. As a result, thousands of small business owners … would be forced out of business.”

AIPBA has around 130 members. It formed after the first such bond increase was proposed, with the support of TIA, in the Senate in 2010.

AIPBA’s leader, former New York DOT investigator and independent broker trainer James Lamb, says a $10,000 bond can be purchased for $350 to $550 yearly. At that same rate, a $100,000 bond would cost $3,500 to $5,500.

However, for small brokerages, it doesn’t make sense for surety companies to guarantee $100,000 when there isn’t enough collateral to back that up, he says. Instead, surety providers would have to demand as much as $100,000 cash paid up front for some small operators.

Lamb also believes backers of the bond increase misrepresent the problems by overusing the term “fraud.”

In the high-profile Gill case, for instance, the perpetrator was posing as a carrier, booking loads from load boards, then posing as a broker to other carriers who actually moved the loads while he took payment for nothing. To mask his activities, Gill reportedly changed the names on his carrier and broker company filings.

While a higher bond could act as a deterrent for such people, most payment problems are much less dramatic or deceptive, and could be addressed in ways that don’t discourage competition in the industry, Lamb says.

He favors regulatory adjustment over what he sees as “Congressional overstepping.” He offers a compromise bond level of $25,000, which would adjust for inflation since 1980.

He would also require brokers to maintain cash in a “fiduciary trust account” at a level proportional to freight volume. “Money is collected from the broker and it has to go into an escrow account – they can’t touch that money because it goes to carriers.”

Some brokers voluntarily allocate their operating and reserve monies in this manner already, says Lamb. “When they’re starting to go down, they use that money. This idea is that they couldn’t touch the money – if we can incorporate that idea with the $25,000 amount, it would still be a level playing field” for smaller brokerages with their large competitors, Lamb believes.

Landstar Ranger-leased, formerly independent owner-operator Gordon Alkire favors graduated minimum bond or trust levels. “If you make $500,000 yearly and you use a lot of trucks, you need to have a bond to cover a lot of trucks,” he says.