Federal regulators are considering whether to begin a formal rulemaking process to enforce the immediate shutdown of truck brokers that fail to pay motor carrier claims.
The comment period for an advance notice of proposed rulemaking (ANPRM), known as “Broker Trust Funds and Surety Bonds,” ended in November 2018 and generated 70 comments. The proposal — as with a petition recently filed by owner-operators on broker transparency — is meant to provide regulatory oversight that carriers contend is lacking and therefore costing them millions of dollars per year.
“Both would do a lot toward putting greater confidence in the broker industry among carriers, and prevent carriers from being taken advantage of,” Paul Cullen Jr., a lawyer representing the Owner-Operator Independent Drivers Association (OOIDA) on the proposal, told FreightWaves.
“They fall under the category of ways in which the current oversight of brokers needs to be improved to fulfill the intent of the statutory and regulatory scheme.”
When federal legislation signed in 2013 increased from $10,000 to $75,000 the minimum amount required in a surety bond or trust fund held by brokers to pay out motor carrier claims, it was anticipated this would also address the sometimes monthslong lag between the depletion of the bond or trust fund and the removal of a broker’s operating authority.
It is during that interim that carriers, particularly independent owner-operators, can unwittingly continue to hire brokers that have already used up the financing needed to pay claims.
“The agency is therefore considering adopting a rule to suspend immediately any broker’s/freight forwarder’s operating authority when there is an actual drawdown on the bond/trust fund below the $75,000 minimum requirement or when the broker/freight forwarder does not respond after the surety/trust fund provider provides notice of a valid claim,” the FMCSA stated at the time it issued the advanced proposed rulemaking in late 2018.
A formal proposal is “still under review,” a U.S. Department of Transportation official told FreightWaves, adding that “we had been anticipating more input with which to inform the proposal, but that wasn’t the case.”
Cullen noted that sureties and trustees lack strong incentives to act quickly to cancel a depleted financial instrument.
“The FMCSA has no process to suspend a broker’s registration when claims against them begin to accumulate, thereby reducing the amount of the available bond,” he said. “That allows delinquent brokers to continue to stay in business, even when sureties and trustees have evidence that a broker has stopped paying its carriers. Interpleader actions filed in federal court show that hundreds of thousands and sometimes over a million of dollars in freight claims can accumulate before a surety or trustee acts to terminate the bond or trust.”
Cullen also pointed out that as the situation stands, there is no downside to a broker continuing to operate even when claims against its bond or trust exceed the required $75,000. Nor is there any downside to a surety or trustee in letting such a volume of motor carrier claims accumulate. A formal rule would give teeth to the law passed in 2013.
“Under federal statute, once claims start to come in that reduce the amount of the required security to protect the public, FMCSA is required to suspend a broker from doing business, so that they cannot continue to engage carriers with no intent to pay them.”
The American Trucking Associations (ATA) also pushed for more broker oversight but recommended a period of at least two weeks be used as “the appropriate cushion time for brokers or freight forwarders to respond to claims made to the guarantor,” it stated in its ANPRM comments.
“While ATA appreciates the need to move swiftly to avoid valid claims piling up in a situation where an intermediary is unable to meet them, it also recognizes that intermediaries need time to internally investigate claims, that the vagaries of the business sometimes result in invalid claims or claims that can be easily remedied, and that suspending an intermediary’s registration without sufficient opportunity may result in significant supply chain disruptions.”
The Transportation Intermediaries Association (TIA), which represents brokers and freight forwarders, pointed out in 2018 that the law makes the security holder — not the broker — ultimately responsible for carrier payments. It requested that the FMCSA require that trust providers give “timely notice of the financial failure of any one of their clients” as well as to make publicly available information regarding paid claims.
“A motor carrier that does not get paid for loads it transports may not be able to invest adequately in maintenance and safety improvements,” the group stated. “TIA urges FMCSA to give its highest priority to ensuring that trust providers are fully funded to avoid the disastrous consequences of trust fund failures (or refusals to pay claims) that could harm many small carriers and endanger the driving public.”