FMCSA's carrier/broker-registration overhaul to 'clean up the bad actors': Detail, potential problems

Ken Riddle: So, we're going to clean up the bad actors that are in our system now.

Todd Dills: The voice you heard there was that of Ken Riddle, FMCSA Director of the Office of Registration, which handles applications for authority, updates to carrier and other entity data, third-party access to the system, BOC3 filers access, and more. Today's edition of Overdrive Radio, for April Fool's Day, we are not fooling around. Big changes to how carriers interact with the FMCSA system are on the way, as Riddle noted there, aimed at rooting out bad actors. FMCSA, now, at the least, fully acknowledges are registered in the system today. We're talking all those organized double brokers and affiliated carrier entities, identity fraudsters, and others.

I'm Todd Dills, your host as usual. And today, we'll hear Riddle's full talk from the Mid-America Trucking Show with an eye to give you at least some clarity on what to expect, particularly when identity and business verification tools come into play, or what Riddle describes as a cleanup of the entire population of currently registered carriers, brokers, forwarders, and others. Part of what he had to say at MATS caught the ear of more than one reader too with potential problems for sole proprietor owner-operators.

Ken Riddle: So one of the things the business verification will do, will reach out to the IRS and validate that the business is registered with the IRS. Now, if you're a sole proprietor, you're supposed to be registered with the IRS but may not be. So then, we're going to check state credentials because you have to be licensed with the state even if you're a sole proprietor.

Todd Dills: Yet that's not 100% the case in every state, as noted W. Joel Baker, longtime owner-operator and insurance agent and a regular contributor to our Overdrive Extra series. As sole proprietors, formal registrations outside the payment of self-employment taxes and/or other business taxes, whether it's state or the IRS, aren't always in play, Baker noted. "We sole proprietors," he said, "often do not have, nor are we required to have a business that is, 'registered with the IRS.'"

If business verification procedures within FMCSA's registrations are implemented without a consideration made for such businesses, Baker added, "it will have a massive negative impact on the industry," not to mention any individual owner cleaned up through the process with authority revocation or another adverse outcome. Riddle had more to say about business verification too though, noting that, "The agency is looking for a third-party contractor to help with verifications and that it's fairly early days for the process."

Ken Riddle: So, there will be a multitude of databases that we can go out and check to make sure the business is a legitimate business that actually exists before we allow it to register with FMCSA. That will help mitigate the fraud.

Todd Dills: I also queried FMCSA directly about the situation Baker brought up. A rep there stressed, the agency is still researching what data is available to validate businesses against, and if all business scenarios can be accommodated. "We believe the data is available, but we are still gathering details." So, keep tuned on that front for sure. On the other side of the break, we'll dig into Riddle's full presentation at the Mid-America Trucking Show in hopes of giving you further background for what to expect from these fraud mitigation focused changes.

Ken Riddle: We're working just as hard as we can, as fast as we can. But the new system, it's a enormous effort, Herculean effort. It takes a little bit of time. So, we're aiming for early FY '25.

Todd Dills: And mark your calendars for May 29th, the agency's next public engagement session too, where you can bring your own ideas and questions for ways to root out double brokers and other fraudsters who've been taking advantage of gaps in the system for many years now. Keep tuned.

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Todd Dills: That's H-O-W-E-S, howesproducts.com. Keep tuned in the coming weeks for more from my talk with trucker Josh Giesbrecht, the latest owner-operator honored with induction into the Howes Hall of Fame for his long work as a video blogger chronicling his life and business, OTR, bringing the wider world into the cab. We had a great conversation at the Mid-America Trucking Show and looking well forward to sharing that one with you. Today, more from Mid-America as noted, here's FMCSA's Tom Keane setting things up from the Pro Talks Stage at MATS.

Tom Keane: This session is focused on FMCSA's modernization efforts related to our registration system. So this relates to your initial registration, your MCS-150 updates, any insurance filings, those kinds of things. And with me today is our Director of Registration, Ken Riddle. Ken and his team are very customer service focused for your needs, our stakeholders, the industry stakeholders who need to register, who need to update filings concerned with the privacy of your information in our system.

And obviously, we've had a registration system in its current form for many years. And it was robust when it was originally designed and implemented, but it's become very dated over the years, and we need to modernize that registration system. Ken has been with FMCSA for nine years, but he had an entire impressive career before coming to FMCSA. Ken was originally commissioned in the Army as a Second Lieutenant in 1985 from the Citadel in South Carolina. And served more than 30 years in the US Army in various roles, retiring as a Colonel before he came to FMCSA as our Director of the Office of Registration.

And, Ken is just a really impressive individual. He's going to talk to you today about a whole range of modernization efforts that we're engaged in now. And it's going to require some action by you, but I think as we talk through this, I hope you can appreciate this is for the protection of your information as we move forward to prevent fraud in the system in the industry. You've heard it. If you were in any of the other sessions this morning, you've heard about the increase in fraud in recent years. And that is of utmost concern to FMCSA, whether it's theft of freight or whether it's stealing identities, things like that. But, that is our primary focus here in modernizing our registration system. So without further ado, I'll turn it over to Ken.

Ken Riddle: Thank you very much. Appreciate that introduction, Tom. And by the way, Tom is my boss. I work for Tom. It's nice to have your boss introduce you. I do hope I have some good news for you today on our modernization efforts and our efforts to help prevent fraud in the industry. This is our goal in the Office of Registration. It's all about improving the customer experience, not only through a new modernized registration system that we want to streamline the process of registration, make it easier to make updates, but we want a safe, intuitive and one-stop registration system. But also providing first-class, timely, effective customer service to the CMV industries. And we do that through a call center with over 350 agents at the call center where we try to keep the wait times low and the answer is correct to help you in the industry.

I'm going to start with fraud prevention because that's of utmost importance right now. Fraud and freight theft are at an all-time high in the commercial motor vehicle industry. Every corner of the industry is experiencing fraud, whether it be on the carrier side, the broker side, you name it. It's in every corner of the industry. And we have heard from industry. We've heard from drivers, we've heard from carriers, we've heard from trade organizations, trade press about how bad the fraud is. And we've been asked, "What can you do to help FMCSA?"

So we heard you, we're listening, and we're going to help. We've done a few things around the edges like suspended online PIN requests. Somehow, PINs were being interdicted, intercepted, as we send them to people online, so we shut that down. The only way to receive a PIN number for your account is via mail. The address on file. It's not perfect, but we had to shut down sending PINs across the airways because they were being intercepted. We've introduced multi-factor authentication in front of our systems. That's login.gov. For those of you that have entered the system recently, you had to go through login.gov. That's going to help.

For paper applications, we get 27,000 pieces of paper a month into our call center to process, MCS-150, Op-1, et cetera. We started requesting copies of the driver's license for any change to an account. Again, to try to help mitigate the fraud because fraudulent paper was coming in, changes were being made that should not be made, that has its own issues. As soon as we started doing that, the fraudsters started asking for driver's license before they would book a load with you. So that has its issues, but it helped preventing bad principal places of business addresses, PPOBs.

Todd Dills: The principal issue with principal places of business you've read about for the last couple of years, where organized double broker networks established carrier and broker authorities using "virtual offices," mail drops and other locations in clear violation of the regulations carrier side. Yet FMCSA had no easy way other than the rather slow new entrant audit process to police that issue. You can read more about how folks within trucking have taken on that problem themselves on Overdrive's own Alex Lockies reporting from a different session at MATS. Look for a link to it in the show notes or in the post that houses this podcast for April 1st 2023 at overdriveonline.com/overdrive-radio.

Ken Riddle: ... where we've made some changes to our existing system that helps reduce the number of bad addresses that are registered with FMCSA and the new system will go a lot further towards preventing those bad addresses. And the last thing we're doing that we've already started is standing up a fraud registration team. That is a new team in FMCSA in the Office of Registration that will be solely focused on helping mitigate the fraud related to registration activities.

But here's what we're getting ready to do, and this is big. This is a change. We're getting ready to introduce identity verification services. This is contracting with a industry-leading provider out there that can provide identity proofing services. Where you have to verify you are who you say you are before we allow you to register. And we're in that contracting phase right now. And, we're going to hire the best that we can to help mitigate that. We're not going to do it ourselves in-house. And I'll show you a little bit of what that looks like.

Same thing with the business verification. We're going to contract for a service that helps verify and validate the business exists, because people are registering and don't even have a business. All businesses should register with the IRS. So, one of the things the business verification will do will reach out to the IRS and validate that the business is registered with the IRS. Now, if you're sole proprietor, you're supposed to be registered with the IRS but may not be, so then we're going to check state credentials because you have to be licensed with the state even if you're a sole proprietor.

Todd Dills: As noted at the top of the podcast, the agency is fully expecting to be able to account for all legitimate business situations, including sole proprietor, owner-operators not registered with their states as LLCs or other business type.

Ken Riddle: So, there will be a multitude of databases that we can go out and check to make sure the business is a legitimate business that actually exists before we allow it to register with FMCSA. That will help mitigate the fraud. We're going to send all new applicants through these services, the identity and business verification services, but we're also going to run all existing registrants. Everybody in our database will have to go through this identity and business verification, over 800,000 registered entities with FMCSA will go through this verification process.

If they don't go through it, or refuse to go through it, or don't pass it, revocation proceeds. Okay? So we're going to clean up the bad actors that are in our system now. And that'll be done over a period of time, probably a 90-day period, we'll say in the next 90 days. And we'll probably have to segment the population because we can't have 800,000 registrants going there all at once, so we'll probably segregate the population and then, give you a certain period of time to go through and complete the verification.

The good news is we're not going to wait. We can't wait on a new registration system to implement the identity and business verifications. We need to do it just as soon as we possibly can to help mitigate the fraud, to help protect you, and we're doing that. We're working just as fast as we can. And we're not going to wait on a new registration system. These services, when we finish, will be put in front of our existing systems, URS, MGMAs, L&I, so we can start combating the fraud soon. We're not going to wait.

You're going to see the theme, the first bullet up there, enhanced fraud-resistant security features on just about every slide. That's how serious we are that that's going to be our number one priority. Six months ago, fraud prevention wasn't our top priority in building a new system. Today, it is because we've heard from all of you and the industry how bad it is and how much help is needed. We're going to streamline the registration process so it is more intuitive and user-friendly.

We're going to improve the customer experience. Improve the quality of the data. If we can collect better data and industry uses our data, we need to improve the data. It'll have real-time, data validation, SmartLogic, and edit checks. What does that mean? We're going to validate the data that's being inputted in this new system in real time. So if you enter a PPOB in the new system, it's going out and trying to validate that address in real time and then allowing you to continue in the registration system.

SmartLogic and edit checks will help reduce mistakes in the initial registration. I can't tell you how many new applicants apply for freight forwarder authority or intermodal equipment provider authority, and that's not what they need. They just misunderstood the description. We're going to make it clearer and make it harder to make mistakes in the new system.

It's going to consolidate all the forms into one. You'll go to one place, the new registration system, to make any updates or changes after your initial registration. So, it'll support you the full life cycle. And you'll go to one place and it'll be one form. It won't ask you all the questions. It'll be an online intuitive form that based on the answers to the questions, it will present the next question. It won't ask you questions about hazmat if you didn't say you carry hazmat, okay? So, it's going to shorten and streamline the process.

We expect this is a very aggressive timeline. I'm nervous about putting a date out there, but early FY '25. Early fiscal year '25 is what we're aiming for to get this new system in place. Again, the identity and business verification is before that. We're working just as hard as we can, as fast as we can. With the new system it's an enormous effort, Herculean effort. It takes a little bit of time. So we're aiming for early FY '25. I probably don't even need to brief this slide. Why do we need a new system?

Todd Dills: A slide here displayed for attendees of a session, an image of an old cassette tape. On the technology continuum though, Riddle said, "It might've been more appropriate to reach even further back in time for a good analogy."

Ken Riddle: That should probably not be a cassette tape. It probably ought to be an eight-track tape, because that's how old our existing system is. And as Todd pointed out, it's in desperate needs of an update. Technology has advanced, technology has changed, and we need to change. So, we're going to put it on the latest platform with the latest software. We'll make it high-speed, low-tech.

Here's some of the new capabilities under consideration. There is a rulemaking effort with the new registration system and we are in the process of writing a rule, so that's why these are under consideration. You will have an opportunity to comment in the NPRM, notice of a rulemaking is published, you'll be able to comment on that. And we encourage you to do so. That's when the changes will really be decided is once that NPRM is published.

But here's some considerations as we write the rule. Number one at the top. You saw it on the last three slides, security. User-friendly and intuitive, I've already talked about that. Error prevention, make it hard to make a mistake for a new applicant filling out the application. Auto-populate pre-existing information. If we've asked you for it once, we don't want to ask you to fill it in again. If any of you have completed a registration with us recently, you had to put your name and address in about four times. It's outdated technology. So you put it in once and if we need it again, we'll grab it from when you put it in the first time.

We're going to automate all aspects of the registration process. If you have to upload supporting documents, you'll have the capability to do so really easily. Again, it's going to go out and check databases and validate information in real time as you're entering it. It's going to prevent duplicates. There will be ability to query information better.

Right now, if I need to get information out of our system, I have to put in a ticket that goes to an analysis team, that goes to a contractor to pull the information that we need out of our system. Number of freight carriers. The new system will allow us to do those queries much easier, much quicker. We're going to eliminate the motor carrier docket number, the MC number. There will only be a USDOT number that will be the sole identifier for all registered entities.

Todd Dills: This particular change, eliminating the MC numbers associated with carrier broker and other authorities was a headline-worthy part of the news that came out of the MATS session. Yet, such a move has long been talked about by FMCSA, for at least the last decade since the so-called Unified Registration System came into play.

Ken Riddle: The authorities that you have, that you apply for and are granted to you, will just be listed underneath that USDOT number in our system, whether it be property authority plus broker authority plus freight forwarder authority, they'll all be listed under that USDOT number. It will be a sole identifier. We're going to remove all the arbitrary wait times. Right now, if you have to file a reinstatement, it takes about three to four days for that reinstatement to take place.

We're not real sure why, the current system takes weekends off we think. We're not sure why the system takes weekends off. It really shouldn't, right? It's an IT system, so the new one's not going to take weekends off. We're going to process things just as quick as we can process them and cut out all the arbitrary wait times. Both for your initial registration on the 10th day at midnight of a protest period, if your insurance is on file and your process agent was filed, authority should be granted at midnight on that 10th day of the protest period. There's no reason to wait longer than that. So, we're going to improve the timeliness.

Eliminate paper potentially with a rule. Not initially, when we roll out, I said early 2025, early FY '25, that's release one. Not all capabilities will be in release one. Most capabilities will be in release one, but there are some things that have to wait on the final rule. The final rule is going to take a lot longer than it will take us to do release one. Paper's one of them, paper applications. We really should not be accepting paper applications in the 21st century, okay? So, we want to eliminate that because it reduces the fraud. If we eliminate the paper, and there's the right security checks in our system, it'll reduce the fraud. And, that's our aim.

So when the final rule is published, and then you can comment on this in the NPRM, the idea is we will eliminate paper applications. Improved access for existing registrants. You will actually have an account just like you have a bank account, and you can go into that account and see the status of your authority, see the status of your USDOT number. See what forms you have filed, see what letters we have sent you, see what grant letters that we have provided to you, all in your account. Again, something that seems pretty simple today because in just about industry, we need to do that here. So you'll have a user account that only you can access that will have all the information that you need in your account.

We need the ability to communicate with industry with you, and we don't have that capability right now. Because in many cases, people don't want to put their correct email address in there because you get bombarded or your correct telephone number. But with a new system with better security protocols, we want to get a good email from you, a good telephone number from you. And when we need to reach out to you to let you know about a change or an update, we can do this.

I want to be able to hit a button and speak to all insurance filers, or hit a button and speak to all industry consultants, or third-party service providers, whatever title you go by. Hit a button and talk to all hazmat carriers or all intermodal equipment providers. Whatever the demographic is of the population, we ought to be able to communicate with you on changes or updates. We should be able to do that with the right new system. The filing processes are going to be changed a little bit for insurance filers, process agent filers, financial institution filing, BMC-84s, 85s. That filing process will be different. It will look different. It will be more stringent

Todd Dills: Here, Ken Riddle will begin to walk attendees through a hypothetical of what the system might ultimately look like. In the Q&A type logic, it should walk registrants for authority and others through as an improvement.

Ken Riddle: So, this is not what the new system looks like, okay? This is just some ideas as we think conceptually about what we want this thing to do, this new registration system. And there's even a choice missing up there to show you that this isn't nearly a final product. The first thing is, do I need to register? That will be the tool for those that don't know exactly whether they need to register or not.

There'll be a tool that asks a simple five questions, and depending on how you answer those questions, you'll learn whether you need to register with FMCSA or you don't need to register with FMCSA. The second question will probably be, take me to the application. I'm ready to register. That option's missing up there right now, but for those of you that don't need to go through the tool, you know you need to register, we need a button that says, take me to the application. And then, the third one is existing users. I'm already registered. I want to get into my account. And, that's a third option up there.

These are very conceptual. Here's what that tool might look like. Five simple questions. First one being, and that is if you selected the first option on that other page, do I need to register? It'll take you to this, do I need to register tool. And you answer some simple questions. The first question is, please select the option that best describes your operations. And here's where we can make sure they don't wrongly select freight forwarder or intermodal equipment provider. We'll clearly articulate what these mean. And, these aren't the final words. Like I said, it's conceptual. It's not what the final product will look like, but an easy tool that helps you make the right selections.

If you do need registration... If you don't need registration, you'll be told so. If you do need registration, you'll be taken to another screen. And, it will just remind you of some of the things you need to register. Like, you're going to need your name and address and phone number. You're going to need to have an agreement or an arrangement with a blanket process agent because the carriers in the new system will select their process agent, their blanket company.

Right now, blanket companies file on behalf of carriers. In the new system, in accordance with statute, carriers will select their blanket company during the registration process. So, you have to already have that business arrangement with a blanket company. And then, you'll be given the blanket company's account number so that you can put in an account number to select your blanket company. That blanket company will receive an email, "Carrier XYZ has designated you as their blanket company. Do you accept? 'Well, yeah, we talked yesterday, we've got a business deal. I accept.'" Or "No, I've never heard of carrier XYZ. I reject." But, the carrier is going to be the one selecting the process agent.

So, all those reminders will be on a page like this about what you need before you begin the registration process. Next slide or next screen probably takes you to something like this, where is the identity verification? We don't even know what this will look like yet. We haven't contracted for the services yet, we're the process, but it'll be a screen where you've got to input some data and it will verify your identity with this provider of that capability. Not unlike what you do today with just about every other industry, whether it be the banking industry, the IRS, or what have you. You've got to verify your identity when you set up your account.

And you'll be told your identity is valid and to continue or your identity is not valid, you cannot continue. You've got to resolve whatever the issue is on the identity verification. And then, it'll take you to another screen in the new registration system where it's going to verify your business information. And, it's going to ask you for information about your business. We don't know what this screen's going to look like because we haven't contracted for the services yet, but you'll have to put in certain business information and then it'll validate that your business exists. Because, you shouldn't be able to register with FMCSA unless you've established the business first.

Then the next slide may look something like this, or next screen in the application process. Would you like to designate a third-party to complete your application on your behalf or industry consultant? I'm not sure what the terminology is that should be, but I think if I say third-party service provider or industry consultant, you know who I'm talking about, the person that completes the application for you and provides other services on top of that.

Or, would you like to complete it on your own? If you want to complete it on your own, it's going to allow you to continue. If you want to designate somebody to complete the application on your behalf, you're going to have a pre-arranged deal with them. And, you're going to put in their account number because they will have provided you that account number. And it will say, do you confirm that West Company Limited is who you want to complete the application on your behalf? Yes, that's the account number because we want to make sure you put in the right number, okay?

That third-party, that consultant, will get an email, "Carrier XYZ has designated you to complete the application on their behalf. Do you accept? 'Yes, I accept. We talked yesterday.'" Or, "Never heard of them, I reject." So, third-party goes in, let's say they accept, third-party goes in, completes the application on your behalf. The applicant then has to go back in when the consultant is done and sign the oaths and verifications.

So, there's two things that the applicant has to do with the new system that they don't have to do today. One, they've got to go in and pass the identity and business verification before they pass it off to a consultant. And they've got to come back in the end, verify what the consultant put in is correct, and sign the oaths and verifications. That is a change, but it's to protect you, it's to protect the industry. We have to do that. And then, it allows the consultant review to complete the application. It'll also be in a mobile-friendly format. And with a new system I can't imagine completing today's form on a mobile device. But with a new system, you should be able to easily navigate and complete the application because it will be a streamlined process. So, it will be mobile-friendly.

What are some of the changes? What are some of the potential changes? Some of this will require the rulemaking. The USDOT number is a sole identifier, okay? That's most likely going to happen. I don't even think that requires the final rule. It may, but it'll be in the NPRM. Safety registration. We are supposed to issue safety registration now, but our legacy system does not have the capability. All interstate motor carriers, whether they're for hire or private, will be required to have safety registration. It is a new type of registration that provides safety jurisdiction over that population. So, you'll get your USDOT number, which is nothing more than an identifier. You'll get operating authority if you need it, and you'll get safety registration.

Potentially, what's written in the rule would be insurance filings are required for private hazmat and exempt for hire carriers. That is not required now. In accordance with statute, it's supposed to be. Same thing with private hazmat and exempt for hires are going to have to have service... Might have to have process of service agent on file with FMCSA. Those are not required now. So those would be two changes for private carriers and exempt for hire carriers.

Improved principal place of business verification. We're doing that now. It'll be even better in the new system. Fees are under analysis. I can't tell you what's going to happen with the fees, but that's part of it. We're building a new system, we're reevaluating, and no paper applications, again, under consideration, will be part of the rule.

Todd Dills: Bring any and all recommendations and questions straight to the agency May 29th. Find a link to where you can keep tabs on details for the 1:00 to 3:00 PM Eastern Time virtual session on May 29th to discuss the new system. Find that link in the show notes for the podcast in the overdriveonline.com/overdrive-radio where this podcast is posted. As of April 1st, details aren't fully available yet, but the agency noted last week they were working on putting the session details together fully. As always, a big thanks for listening and keep tuned to the podcast for more from MATS.

Next week, past Overdrive Small Fleet Champ, Jason Cowan delivered a veritable sermon at the show in the form of an inspirational talk, the Long Time Truckers, about how to truly value the relationships you have with customers, with partners and suppliers, employees, family. All toward a goal of leaving your business better than you found it. Keep tuned.