The Federal Motor Carrier Safety Administration on Tuesday announced it is extending the comment period for a notice of proposed rulemaking (NPRM) offering rules to change broker and freight forwarder financial responsibility requirements in various ways. Comments were originally set to close March 6.
The agency also announced it will reopen a comment period on interim guidance issued in November clarifying the definitions of “broker” and “bona fide agents” as it relates to all brokers of transportation by commercial vehicles.
Both moves are being made due to the scheduling of a public listening session at the Mid-America Trucking Show on Friday, March 31, at 10 a.m. Eastern time at the Kentucky Expo Center in Louisville, Kentucky. The listening session will pertain to brokers and will specifically focus on the financial-responsibility NPRM, as well as the interim guidance issued in November.
FMCSA said that while the interim guidance on broker and bona fide agent definitions, and related to when dispatch service providers would be considered brokers or not, was effective immediately upon publication, the agency still sought comments and will issue final guidance by June 16. The comment period will be reopened on March 31 and will be open through April 6. “FMCSA believes it is in the interest of the public to reopen the comment period so FMCSA may consider comments on the guidance made at the session and for a short period thereafter,” the agency said. Comments on the interim guidance will be able to be filed here when they reopen March 31.
The NPRM relating to brokers’ financial responsibility is being extended by 31 days and will now remain open through April 6. Comments can be filed here.
[Related: FMCSA proposing new broker, freight forwarder financial responsibility regs]
The breakdown of the NPRM’s potential new regulations
Assets readily available
FMCSA proposes allowing brokers or freight forwarders to meet the MAP-21 requirement to have “assets readily available” by maintaining trusts that meet certain criteria, including that the assets can be liquidated within seven calendar days of the event that triggers a payment from the trust.
Immediate suspension of broker/freight forwarder operating authority
The NPRM proposes that “available financial security” falls below $75,000 when there is a drawdown on the broker or freight forwarder’s surety bond or trust fund. This would happen when a broker or freight forwarder consents to a drawdown, or if the broker or freight forwarder does not respond to a valid notice of claim from the surety or trust provider, causing the provider to pay the claim, or if the claim against the broker or freight forwarder is converted to a judgment and the surety or trust provider pays the claim. FMCSA also proposes that, if a broker or freight forwarder does not replenish funds within seven business days after notice by FMCSA, the agency will issue a notification of suspension of operating authority to the broker or freight forwarder.
Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency
FMCSA proposes to define “financial failure or insolvency” as a bankruptcy filing or state insolvency filing. This proposal also requires that if the surety/trustee is notified of any insolvency of the broker or freight forwarder, it must notify FMCSA and initiate cancelation of the financial responsibility. In addition, FMCSA proposes to publish a notice of failure in the FMCSA Register immediately.
FMCSA said that in order to implement MAP-21’s requirement for suspension of a surety provider’s authority, the agency would first provide notice of the suspension to the surety/trust fund provider, followed by 30 calendar days for the surety or trust fund provider to respond before a final agency decision is issued. The agency also proposes to add penalties in 49 CFR part 386, appendix B, for violations of the new requirements.
Entities eligible to provide trust funds for BMC-85 filings
FMCSA proposes to remove the rule allowing loan and finance companies to serve as BMC-85 trustees.
‘A great step in the right direction’
As of Tuesday morning, FMCSA has received just 68 comments on the broker financial responsibility proposal, 55 of which have been posted to the public docket. Most commenters so far are in favor of the proposed rules, but some in the broker community feel the proposed rules are unfair.
The American Trucking Associations said it agrees with much of the proposal but outlines ways FMCSA can take it even further to ensure carriers get paid in a timely manner.
“Unfortunately, by taking a more permissive approach to what assets would be considered readily available, the agency risks opening the door to expanded -- instead of restricted -- use of broker-funded trust funds,” ATA said. The group added that FMCSA made it clear in the proposal that there are a number of asset types that are not able to be liquidated within seven days, but said “the proposal does not fully evaluate the more fundamental question of which asset types specifically meet a standard to serve as a financial guarantee.”
ATA suggests FMCSA include a “prescriptive list,” which would “provide an answer to this question while also ensuring that the FMCSA is exercising its regulatory authority and responsibility to set financial responsibility policies that reduce unscrupulous brokers.”
Surety bond provider Avalon Risk Management said in its comments that the company generally believes the rulemaking “will substantially enhance compliance with the requirements of MAP-21 and oversight of the process of providing surety bonds and trust agreements for the protection of motor carriers and shippers.” Avalon also made a few suggestions to clear up some ambiguous language in the rulemaking relating to claims protocols.
Matt Patrick, who said in his comments he works for a carrier and brokerage, said the proposal is “a great step in the right direction.” In his capacity working for both a carrier and brokerage, he sees double brokers daily, he noted. “They pop up like whack-a-mole characters relying on their surety bonds to operate,” he said. Patrick noted that “if each brokerage actually needed $75,000 in funding it would make it more difficult for them to operate.”
Patrick noted that “FMCSA should be doing far more, or handing off responsibility to another agency to more seriously go after double brokers and [the] vast quantity of carrier MC [numbers] that are used to obtain loads from brokers that are then handed off to double brokers.”
[Related: FMCSA needs a 'cop on the block' fighting double-brokered freight fraud]
Commenter Stephen Hardridge noted the proposed measures will help, but he added that “there is no need for a freight broker in trucking. It needs to be ‘shippers’ and ‘owner-operators.’” Hardridge argued shippers should post loads with all the dimensions, and owner-operators should accept them “for a sensible pre-calculated fee,” and that terms of partial or full load would be discussed between the shippers and carriers. “Get freight brokers out of trucking; us owner-operators didn't start our business to be legally extorted by these freight brokers,” he concluded.
Wells Transport said it supports parts of FMCSA’s proposal, but added that the $75,000 bond requirement falls short. “Brokers’ bonds should match their projected revenue for an average of 30 days,” the company said. “A small [$]75k bond is too low for a very large brokerage that can exhaust the policy in a single day. It should be much higher for them. Conversely, a smaller brokerage might take an entire week of exhaust a [$]75k bond. It's not one size fits all out here.”
Hans Witt, like some other commenters, suggested FMCSA’s proposal should go even further in some areas. “How about putting a broker's authority on hold as soon as there is claim against the bond,” he said, just as the agency stops a carrier when they have no insurance.
Commenter Dimitar Andreeva suggested a new method of carrier payment in which when a load is picked up by a carrier, the broker deposits the payment into an escrow account. Once the load is delivered, the broker issues a release of the funds in the escrow account, making payment within 24 hours. If the payment isn’t made, Andreeva suggested a 3% fee per day should be added to the invoice. “All other so-called arrangements are not beneficial to carriers who are already invested in transporting the load by paying for fuel and other fees until delivery.”
The argument for transparency
Several commenters noted that while the proposed regulations are an improvement over the status quo, FMCSA should have done more to address broker transparency when it comes to freight rates, calling back to petitions filed in 2020 amid the dramatic fall-off in rates in the early part of the COVID-19 pandemic.
Commenter John Hopwood said the proposal “is a good first step,” but added that it doesn’t go far enough. “What the next step should be is to have the original dollar amount printed on the bill of [lading], so that the driver can see how much was originally paid to transport the load," ensuring accountability for a broker keeping what Hopwood called "excessive amounts" in any load. After that is in place, Hopwood suggested placing a cap on how much a broker can make from a load, with 10% to 15% being the maximum considered.
One of those early-pandemic petitions, from the Owner-Operator Independent Drivers Association, suggested an automatic accounting for all freight charges upon completion of a load.
Samuel Gurdzhyan said in his comments that he has proof of a broker taking more than 50% of a load’s profit on one occasion. “We should be able to really see the original rate that is being paid to them,” he said. “They should have a fixed broker fee just like in commercial real estate. The way the rates are right now and offering to us truckers, there is barely enough to cover fuel, registration and insurance. Then, when it comes to wear and tear of the truck, or miscellaneous expenditures on the truck, there is nothing left.”
Gurdzhyan added that carriers “need the FMCSA and Congress to put a cap on the broker's percentage that they can make on a load.”
[Related: ‘It’s right there in the law’: Owner-operator talks forced ELD switch, pressing brokers on rates transparency]
‘Lay off the brokers’
While most comments generally supported the proposal or other changes directed at broker financial requirements, some comments suggested that FMCSA leave brokers alone.
“They need to lay off the brokers,” said commenter Margo Kelley. “A broker who is ‘withholding’ payment is only an intermediary. They don’t pay until they are paid.”
Kelley agreed that non-payment is a big deal, but added that “nowhere did I see that the FMCSA say that they will investigate why there is non-payment before a broker’s license is temporarily suspended.”
Willena McGee said it is “unfathomable” as to how many aspects of the proposal are “flawed.” McGee said the proposed rules “will disproportionately impact people of color” because “not many of us have the ability to have $75,000 sitting in the bank at all times,” referring to the proposed requirement of brokers utilizing trusts to satisfy the $75K financial responsibility requirement to have assets readily available.
Instead, McGee suggested FMCSA “actually go after brokerage companies who are breaking the law.”
[Related: FMCSA/DOT getting serious about double-brokering?]
“It is the responsibility of the FMCSA to ensure regulations are being followed,” McGee noted. "It is not the responsibility of the FMCSA to effectively destroy the livelihood of entrepreneurs who are doing things by the book. You would be better served enforcing your own regulations rather than creating new ones that will set the standard so high that we ‘people of color’ lose our access to this industry.”
Commenter Brit Songer said the financial aspect of trucking is outside of FMCSA’s jurisdiction. “The FMCSA should not have anything to do with the money part of the trucking industry,” Songer said. “The FMCSA was made to keep faulty and defective equipment off the road. And to keep drivers from driving so many hours that they are fatigued and sleepy and unsafe.”
Similarly, commenter Don Jipping said he doesn’t “believe FMCSA should have anything to do with this,” adding that it should be the U.S. Department of Transportation itself and not one of its agencies. “The FMCSA should only concern itself with the safety of our highways, not with rule-making and enforcement of rules and regulations involving carriers, brokers, shippers."
Jipping added, however, that it’s evident that the current financial system between shippers, brokers and carriers “doesn’t work anymore. ... I propose a new system where we start with the money trail. The money trail starts with the shipper. The shipper is the one who is actually paying the freight charges to begin with.”
Then, the DOT would set up four or five clearinghouses for freight payments. “The clearinghouses would act as depositories and dispensaries to handle all of the freight charges for shippers, brokers, and carriers,” he said. Under Jipping’s system, a shipper would be required to have money in an escrow account with the clearinghouse to move a load. Then, the clearinghouse would be responsible for paying both the broker and carrier upon completion of the load.
“No longer will any $75,000 bond or trust be required by broker[s], and carriers getting stuck with pennies on the dollar will be a thing of the past. Many of today's issues could easily be eliminated with this new system,” he said.
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