On the upcoming date of November 16, 2023, the Federal Motor Carrier Safety Administration (FMCSA) is set to formally establish a new regulation aimed at strengthening the financial obligations of freight brokers. This measure is designed to curb dishonest practices in the industry and enhance safeguards for truckers by imposing stricter financial security requirements, ensuring that brokers fulfill their payment responsibilities. The Final Rule will be officially published in the Federal Register tomorrow.

“This rule will result in benefits to motor carriers. FMCSA is aware that some brokers choose to withhold payment to motor carriers for services rendered. Motor carriers can then submit claims to the financial responsibility provider to receive payment … FMCSA believes that most brokers operate with integrity and uphold the contracts made with motor carriers and shippers. However, a minority of brokers with unscrupulous business practices can create unnecessary financial hardship for unsuspecting motor carriers,” the agency said.

The FMCSA anticipates that roughly 1.3% of brokers will undergo a reduction in their surety bond or trust fund in any given year, and the average claim amount per submitted claim is estimated to be around $1,900.

Effective from January 16, 2024, the Final Rule introduces modifications to the financial responsibility standards for property brokers and freight forwarders in five distinct aspects:

  1. Assets readily available. Under the existing regulations, broker and freight forwarder trust funds are mandated to comprise “assets readily available to pay claims without resort to personal guarantees or collection of pledged accounts receivable.” The forthcoming Final Rule refines this requirement by revising the definition of readily available assets to include those that are stable in value and can be promptly liquidated within a period of 7 calendar days following an event that necessitates a payment from the trust.
  2. Immediate suspension of broker/freight forwarder operating authority. Arguably the most noteworthy alteration, this regulation empowers the FMCSA to suspend the operating authority registration of a broker or freight forwarder if their accessible financial security drops below $75,000. Such a decrease in financial security may result from a broker or freight forwarder agreeing to a drawdown, failing to respond to a legitimate notice of claim from a surety or trust provider, or if a claim against the broker or freight forwarder transforms into a judgment. Should the available financial security dip below $75,000 and the broker or freight forwarder not replenish the funds within 7 calendar days after receiving notice from the FMCSA, the Agency will issue a notification of the suspension of operating authority to the broker or freight forwarder.
  3. Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency. Under this regulation, if the surety or trustee becomes aware that a broker or freight forwarder is undergoing financial failure or insolvency, it is obligated to inform the FMCSA and commence the cancellation of the financial responsibility. Subsequently, the FMCSA will publish a notice of failure in the FMCSA Register. If the broker or freight forwarder rectifies the default afterward, and the surety company or financial institution reinstates the bond or trust, or if the broker or freight forwarder acquires a new bond or trust, the FMCSA will rescind the suspension notice and update the FMCSA Register accordingly.
  4. Enforcement authority. This regulation grants the FMCSA the power to suspend the authority of a surety or trust fund provider under specific conditions.
  5. Entities eligible to provide trust funds for brokers and freight forwarders. In this rule, the FMCSA excludes loan and finance companies from the roster of eligible trustees. This decision is based on the fact that such institutions are not subject to the stringent federal regulations governing chartered depository institutions or the state regulations applicable to insurance companies. As a result, loan and finance companies are now barred from providing trusts unless they secure certification to function as another type of financial institution that remains on the list of eligible providers.

The FMCSA published a Notice of Proposed Rule Making (NPRM) on this rule on January 5, 2023.