FMCSA Issues Final Rule on Financial Security Requirements

The Federal Motor Carrier Safety Administration (FMCSA) on Nov. 16, 2023, issued a final rule that implements financial security requirements on brokers and freight forwarders. The rule, proposed earlier this year, should provide better protection to motor carriers for unpaid charges owed by a broker or freight forwarder. The final rule is effective on Jan. 16, 2024.

The changes to the regulations are being made pursuant to the Moving Ahead for Progress in the 21st Century Act (MAP-21), which was signed into law in 2012. Brokers and freight forwarders are required to maintain a $75,000 surety bond in readily available assets and must provide evidence of the surety bond in order to register with the FMCSA. Currently, a motor carrier can submit its claim(s) to the financial responsibility provider to receive payment. However, in the event claims against an individual broker exceed $75,000, the financial responsibility provider may submit the motor carrier claims to a court in an interpleader action to determine how the surety bond or trust should be allocated among the various motor carriers. This can be a costly and time-consuming process for motor carriers and, depending on the number of claims, can result in the motor carrier receiving a prorated amount.

Assets Readily Available

MAP-21 required brokers and freight forwarders maintain trusts that consist of "assets readily available," meaning that the assets can be liquidated within seven days of an event that triggers payment from the trust. The final rule adopts a definition of "assets readily available," which are limited to cash, irrevocable letters of credit issued by federally insured depository institutions and U.S. Treasury Bonds.

Immediate Suspension of Broker/Freight Forwarder Operating Authority

If there is a drawdown on a broker or freight forwarder's surety bond or trust, the FMCSA will provide notice to the broker or freight forwarder that it will have seven days to replenish the surety bond or trust.

A drawdown is defined as one of the following:

1. A broker or freight forwarder consents to the drawdown and the instrument value drops below $75,000.
2. A broker or freight forwarder does not respond to adequate notice of a claim by a surety or trust fund provider, the surety or trust provider pays the claim and the instrument value drops below $75,000.
3. A claim is reduced to a judgment, the surety or trust fund provider pays the judgment and the instrument value drops below $75,000.

If the broker or freight forwarder fails to replenish the surety bond or trust within seven days, the FMCSA will immediately suspend its operating authority via a second notice.

If a drawdown does occur, the surety provider or financial institution must notify the FMCSA within two business days of either a payment from the bond or trust or a determination from the surety provider or financial institution that a payment will be inevitable once the 60-day period for submission of claims has elapsed. Notification of a drawdown must be sent in writing by electronic means through the FMCSA's forthcoming Unified Registration System (URS) platform.

Surety or Trust Responsibilities in Cases of Broker/Freight Forwarder Financial Failure or Insolvency

The final rule requires a surety provider or financial institution notify the FMCSA if a broker or freight forwarder is experiencing financial failure or insolvency and initiate cancellation of financial responsibility. "Financial failure or insolvency" is defined as any payment made or other default not cured within seven days or if the bond/trust expects to make a payment after aggregating multiple claims. Notices related to a broker or freight forwarders financial failure or insolvency will be submitted via the URS.

Upon receiving notice, the FMCSA will publish a notice of failure in the FMCSA Register. A surety provider or financial institution may cite financial failure or insolvency of the broker or freight forwarder as grounds for cancellation of a Form BMC-84 surety bond or BMC-85 trust agreement. However, if the default is cured or the broker or freight forwarder obtains a new bond or trust, the FMCSA will lift the suspension notice and update the FMCSA Register.

Enforcement Authority

Under the final rule, the FMCSA has authority to suspend noncompliant surety providers or financial institutions from 1) providing brokers or freight forwarders financial responsibility for three years and 2) assess penalties against surety providers or financial institutions. The FMCSA will provide notice of suspension to the surety or trust fund provider, allowing 30 calendar days (extended to the next business day if the final day of the period falls on a weekend or federal holiday) for the surety or trust provider to respond before the agency makes a final decision.

Entities Eligible to Provide Trust Funds for BMC-85 Filings

The final rule removes the provision allowing loan and finance companies to serve as BMC-85 trustees.

Implementation Timeline

The final rule is effective on Jan. 16, 2024, but the FMCSA has imposed the following implementation periods for compliance with the final rule:

1. one year for the immediate suspension, financial failure or insolvency, and enforcement authority provisions of this rulemaking
2. two years for the assets readily available and entities eligible to provide trust funds for Form BMC-85 trust fund filings provisions