Escrow Rules

| March 25, 2009

Escrow accounts have always been a hot button for owner-operators. Carriers’ negligence in disclosing items escrow money was intended to pay for has led to disputes upon lease termination. Occasional lawsuits challenged carrier practices, sometimes with positive outcomes for the owner-operators.

One result has been more fair and consistent escrow practices. Another outcome is that carriers have been more willing to establish voluntary financial relationships with owner-operators to facilitate savings for maintenance, taxes and other large bills that can handicap a budding trucking business.

Under federal law, however, any fund held by an owner-operator in cooperation with an interstate carrier is governed by the escrow regulations in leasing. Full disclosure of all items secured in the escrow is the carrier’s responsibility. It’s incumbent on the owner-operator to know what he or she is getting into before signing the lease.

Security escrows
Independent owner-operator Robert Harsell’s experience with the most common type of escrow account, the security escrow (or bond), is common. About seven years ago, the Virginia-based owner-operator was leased to a company with a hefty $3,500 escrow requirement, he says, “which they dropped to $2,500.” Its main purpose was to pay any cargo insurance claim deductible. “I got my money back when I left the company,” he says.

Escrows of this size are the exception unless you’re leasing the truck or in a lease-purchase situation. For instance, the much smaller $700 escrow required of Dart Transit contractors acts “as a sort of guarantee for contractor advances, various expenses and other things” the carrier takes on, says Steve Gundale, company spokesman. At Mercer Transportation, an initial $350 covers base plates for contractors. “When they terminate the lease, we give the money back,” says company Controller Tim Pike.

Problems arise, says Sheri Aaberg of leasing company ATBS Leaseco, when the carrier fails to adequately communicate the escrow account’s purpose. The sudden appearance of “miscellaneous” or “unspecified” escrow deductions on settlements often leads to a sour end to the lease – if not legal action.

When a trucker enters into a lease-purchase arrangement facilitated by ATBS Leaseco, Aaberg says, “we’re very careful about sitting down and going through all of it with them.”

One area to watch, says CRST Malone Vice President Bill Trotter, is a requirement for advance notice of contract termination for return of escrow monies. While Malone doesn’t require a certain time period for its owner-operators to get escrow money back, Trotter says he’s seen 30-day notification periods elsewhere.

Some carriers operate on simple trust when leasing owner-operators. “Just before I got my authority,” says owner-operator Harsell, “I was about to lease on to another company. They did not have an escrow requirement.”

Lease-purchase maintenance escrows

CRST Malone’s lease-purchase operators, similar to those in other lease-purchase arrangements, are required to have a $1,500 initial security escrow. Along with that is a maintenance contract and additional maintenance escrow “that will cover most everything that goes wrong with the truck,” Trotter says.

Maintenance escrow accounts in lease-purchase situations are typically mandatory, often funded from settlements on a per-mile basis to account for variability in weekly mileage.

These escrows are meant to protect both the carrier’s and the owner-operator’s investments in the truck. Lease-purchase operators must abide by the maintenance contract; if they don’t, the carrier can use the maintenance escrow to “help” them abide.

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