A bill introduced to the U.S. House of Representatives on June 24 addresses the incessant fraud that has plagued the freight broker marketplace for years.
H.R. 2357, “Fighting Fraud in Transportation Act 2011, FITT,” proposes the federal freight broker bond amount be increased from $10,000 to $100,000. The language that introduces the bill says it would, “increase the effectiveness of Federal oversight of motor carriers.” The surety bond amount increase aims to reduce instances of fraud that occur within the industry.
Freight brokers match shippers with transportation services so goods can be transported. The Federal Motor Carrier Safety Administration regulates transportation brokers by enforcing licensing regulations that mandate the use of surety bonds.
Various accounts from industry professionals over the years reference trucking companies that have gone out of business due to uncollected payments on brokered loads. Oftentimes companies are unable to collect due compensation when making a claim on the surety bonds because the funds have already been exhausted from previous claims. An increase from a $10,000 surety bond to a $100,000 surety bond would make it much easier for trucking companies to collect recompense from fraudulent brokers.
According to the Owner-Operated Independent Drivers Association, if enacted, the “Fighting Fraud in Transportation Act 2011” would:
- Increase the broker surety bond requirement from $10,000 to $100,000
- Extend the bond requirement to freight forwarders
- Increase requirements and disclosures for any person or company seeking to obtain broker or freight forwarder authority
- Establish significant penalties for violations of broker regulations, including unlimited liability for freight charges for conducting brokerage activities without a license or bond
- Establish strict guidelines for companies that provide brokers with surety bonds and on how they administer bonds
The Transportation Intermediaries Association (TIA), Owner-Operator Independent Drivers Association and the American Trucking Associations have joined together in support of the bill, according to TIANet.org. The groups lobby to promote ethical government policies for business conducted in the transportation broker and third party logistics industries. A number of online trucking publications have also expressed support for the bill.
According to LandLineMag.com, a business magazine for professional truckers,
“This law would put a stop to a system that allows ruthless brokers and scam artists to continue to operate unchecked,” says Todd Spencer, Executive Vice President of OOIDA. “Too often, we’ve seen deceitful brokers get away with collecting payments from shippers but cheating truckers out of what is rightfully theirs.”
If the bill does become law, one potential downfall could be freight brokers’ ability to secure what’s already considered a risky bond for a much higher amount. Sureties are already extremely hesitant to issue these bonds for the $10,000 amount because so many claims have been made against them. Surety providers often require applicants to provide 100% collateral before issuing freight broker bonds, and providing $100,000 worth of collateral would be unfeasible for some freight broker companies.
If the bond amount is increased and some freight broker companies are unable provide the financial credentials needed to qualify for the bonds, then the surety will deny them the bond. One goal of surety bonds is often to keep financially unstable professionals from gaining access to service industries through which they could potentially harm consumers. So, raising the bar with a surety bond increase would keep those with limited finances from entering the market, which means that only those who could afford to pay for potential losses in a risky business would be permitted to provide freight brokering services.