Freight Broker Penalty Proposed for Inadequate Security

Freight Broker Penalty Proposed for Inadequate Security

In 2012 the Moving Ahead for Progress in the 21st Century Act, or MAP-21 became a law. One change brought about by the new law was to increase the amount of the surety bond required for freight brokers—known as BMC-84—from $10,000 to $75,000. The increase was enacted in order for the bonds to more adequately protect those who contract with freight brokers, such as shippers and motor carriers. In the event the freight broker violates the terms of the contract, a surety bond is in place for the harmed party to recoup any losses up to $75,000 resulting from the freight broker’s malfeasance.

On Sept. 27th, the Federal Motor Carrier Safety Administration shared a proposal which states that any broker whose bond fails to meet the minimum required amount of $75,000  would be subject to having their operating authority revoked. The measure was proposed as a means of penalizing brokers that fail to adhere to federally established financial security requirements. The proposal also aims to clearly define several terms relating to securities for freight brokers, including group surety bond and group trust fund.

Proposed Operating Authority Revocation Process

The FMCSA proposal allows for the immediate revocation of operating authority in the event of either of the following circumstances:

  1. The broker or forwarder’s operating authority will be revoked if the FMCSA is informed the broker or forwarder’s bond or trust is in an amount less than $75,000.
  2. Operating authority will be revoked in the event a claim is filed against the broker or forwarder’s surety bond, the surety company provides notice of the claim to the bond’s principal (broker or forwarder), and the principal does not respond to the surety company.

If a broker or forwarder’s operating authority is revoked, may not conduct business until it has been reinstated. In some cases, this may mean that the broker or forwarder must begin the application process all over again through the Federal Motor Carrier Safety Administration, which is the entity responsible for regulating interstate commerce for the US Department of Transportation. The application itself costs $300 and the FMCSA estimates the application will typically be processed within 4-6 weeks.

Also being considered are specific definitions for the terms “group surety bond” and “group trust fund.” The phrase, “group surety bonds” is currently recognized as it pertains to 46 CFR 515.21. However, the definition is found within the Federal Maritime Regulations, and it allows for Ocean Transportation Intermediaries to belong to groups that may have the lesser of either $75,000 surety bonds for each member of the group or one $3,000,000 blanket bond. The FMCSA is concerned that a $3,000,000 cap may not adequately cover all members of a large group. Currently, there does not appear to be any available definition for “group trust fund”. Until the terms are defined by the FMCSA, they will not be accepted forms of meeting financial security requirements.

Public Response

The administration is accepting comments through November 26, 2018, to determine what constitutes a reasonable amount of time in which to allow brokers to respond to claims. The proposal has already garnered comments from parties affected by the proposed changes. Some have suggested a higher degree of financial responsibility for brokers, while others have ventured that, even if a broker loses their operating authority, the act of brokers becoming insolvent will continue to happen regardless. A recent poll shows that 80.4% support the proposed penalties for failing to adhere to the minimum security requirements, with 13% dissenting and 6.5% currently responding they are not sure.

Comments on the FMCSA proposal may be left here.

Need to get your $75,000 freight broker bond?

If you do not currently have the minimum $75,000 freight broker surety bond, the experts at SuretyBonds.com can help. We can get applicants approved for their bond starting at $938—just 1.3% of the total bond amount—for a full year of coverage. Visit our dedicated freight broker bond page for more information.

About the Author

Liv Jackson
Liv is a senior at the University of Missouri - Columbia studying Journalism and Spanish. She is a member of the marketing department and outreach team for SuretyBonds.com, a leading provider of online bonding for clients nationwide.