FMCSA Finalizes Broker and Freight Forwarder Financial Security Rules
A November 2023 final rule defined allowable trust assets and let FMCSA suspend brokers whose security fell below $75,000.
In November 2023, the Federal Motor Carrier Safety Administration (FMCSA) finalized new rules on the financial security that freight brokers and freight forwarders must keep. The final rule, published on November 16, 2023, was set to take effect on January 16, 2024, with most requirements phased in later.
Background
Brokers and freight forwarders must file financial security with FMCSA, either a surety bond (Form BMC-84) or a trust fund (Form BMC-85). In 2012, Congress's MAP-21 highway law added requirements for that security and directed the Department of Transportation to issue regulations implementing and enforcing them.
FMCSA proposed the rule on January 5, 2023. It held a listening session at the Mid-America Trucking Show in Louisville on March 31, 2023, extended the comment period to April 6, 2023, and received 340 unique comments. Anything the rule said about brokers applied equally to freight forwarders.
Five areas of change
Assets readily available. MAP-21 required trust funds to consist of assets readily available to pay claims, without relying on personal guarantees or pledged accounts receivable. After comments, FMCSA dropped its proposed list of prohibited assets in favour of a list of allowed ones: cash, irrevocable letters of credit issued by a federally insured depository institution, and Treasury bonds. The agency said these were stable in value and could be liquidated within seven calendar days. It said real estate was not liquid enough, and stocks and non-Treasury bonds carried too much risk.
Immediate suspension. FMCSA could suspend a broker's operating authority when its available financial security fell below $75,000. That could happen if the broker agreed to a drawdown, failed to respond to a valid notice of claim from its surety or trust provider, or had a claim turned into a judgment. If the broker did not replenish the funds within seven calendar days after FMCSA's notice, the agency would issue a notification of suspension.
Financial failure or insolvency. If a surety or trustee learned that a broker was in financial failure or insolvency, it had to notify FMCSA and start cancelling the bond or trust. FMCSA would then publish a notice of failure in the FMCSA Register. If the broker cured the default and got its security reinstated or replaced, FMCSA would lift the notice.
Enforcement authority. The rule implemented MAP-21's requirement to suspend surety or trust providers in certain circumstances. FMCSA would give notice, then allow 30 calendar days for a response before a final decision. It also added monetary penalties for violating the new requirements.
Who could hold BMC-85 trusts. Loan and finance companies were removed from the list of eligible trustees. FMCSA said those institutions were not subject to the federal rules governing chartered depository institutions or the state rules governing insurers.
Phased compliance
The rule set two compliance dates:
- January 16, 2025 for immediate suspension, financial failure or insolvency, and enforcement authority;
- January 16, 2026 for the assets readily available rules and the new limits on BMC-85 trust providers.
FMCSA said it planned to use its forthcoming Unified Registration System to receive information from sureties, trustees and brokers and to carry out its suspension duties. The agency estimated the 10-year cost at $5.5 million undiscounted, with 98 percent falling on the federal government. Petitions for reconsideration were due by December 18, 2023.
Archive: this article describes rules and events as of November 2023. Regulations may have changed since, so check the current rule before relying on it.