FMCSA to prevent broker fraud | FMCSA new rules

Good news for all the carriers out there! Finally, the Federal Motor Carrier Safety Administration (FMCSA) has issued a new rule to prevent broker fraud. The FMCSA new rules comes into effect from Jan 16, 2024.

The FMCSA is tightening oversight in five areas of broker’s financial responsibility and consequence of non-compliance. They are:

1. Immediate suspension of brokers/freight forwarders operating authority:

The FMCSA says that if the surety bond of $75,000 falls down and the freight broker or the freight forwarder does not replenish it within 7 business days of its notice, the FMCSA will issue a suspension notice of their operating authority.

The compliance date of this provision is Jan 16, 2025.

Why this FMCSA new rule?

Freight brokers are required to maintain a surety bond with FMCSA worth $75,000. It is like insurance to protect carriers. The carriers can file against this broker’s bond of $75,000 and get paid if not compensated for the services they offer. Earlier, brokers could slip below the $75,000 and still operate.

Imagine you did a load for $3000 and now the broker is not paying. You file against the broker’s bond of $75,000 and get your $3000 paid. Now the broker’s bond is at $72,000. But what if the bond’s money dries out?

Why does this happen?

Shippers pay brokers for the services rendered by the carriers. The broker uses the carrier’s money for their operations till the invoice becomes due. This results in late payments or non payment to the carriers. 

2. Only certain entities can provide funds for BMC – 85 filings:

FMCSA limits the eligibility of providing surety bonds to the brokers or freight forwarders. Loan and finance firms will no longer be allowed to offer BMC-85 trusts unless they receive certification for operating as a financial institution that is still allowed to provide services. This helps in successful processing of the claims that come in. 

The compliance date of this provision is Jan 16, 2026.

Why this FMCSA new rule?

Before this provision, loan and finance companies were authorized to serve as BMC-85 trustees. Freight brokers or freight forwarders used to take a loan from finance or loan companies to pay back their surety bond. The loan and finance companies are not subject to the rigorous federal regulations applicable to chartered depository institutions or to the state regulations.

3. Acceptable assets:

The FMCSA requires brokers to have assets readily available to pay carriers in case of a dispute . These assets include cash, Treasury bonds, and irrevocable letters of credit issued by a federally insured depository institution. Real estate, stocks, non-Treasury bonds, and other securities are ineligible .

In other words, brokers must have cash or cash equivalents that can be quickly converted into cash. The FMCSA has determined that cash, Treasury bonds, and irrevocable letters of credit are stable in value and can be easily liquidated within 7 calendar days.

The compliance date of this provision is Jan 16, 2026.

Why this FMCSA new rule?

Before this provision, there was no clear guidance on what type of assets were acceptable in broker/freight forwarder trust funds. This lack of clarity led to confusion and disputes between brokers and carriers over the types of assets that could be used to pay claims.

4. Surety/trust responsibilities in broker’s/freight forwarder’s failure or insolvency:

“When a surety provider or financial institution makes a payment against the bond or trust fund or anticipates making a payment after aggregating multiple claims, they may use the broker’s or freight forwarder’s financial failure or insolvency as justification for canceling a surety bond or BMC-85 trust agreement”.

Meaning, if the surety bond provider finds out that the broker or the freight forwarder is going through a financial crisis, they must immediately report it to the FMCSA. The FMCSA states that even before the broker’s default of their surety bond, when the surety provider thinks or finds any financial issues with the freight brokers or freight forwarders they must report it to the FMCSA.

The compliance date of this provision is Jan 16, 2025.

Why this FMCSA new rule?

Before this provision, there was no clear guidance on the responsibilities of surety providers or financial institutions in such cases. This led to confusion over the responsibilities of surety providers or financial institutions as there was no benchmark.

5. Enforcement authority:

FMCSA will have the authority to take enforcement action against brokers and the surety trust providers that fail to comply with the new regulations. 

FMCSA, before making a final judgment, will first issue notice of suspension to the surety/trust fund provider and allow them 30 days to react. Every infraction will also result in a $12,882 fine and the surety/trust fund provider will not be eligible to provide broker financial security services for 3 years. 

The compliance date of this provision is Jan 16, 2025.

Why this FMCSA new rule?

Before this provision, there was no clear mechanism for enforcing broker financial responsibility regulations. This resulted in late payments or non payments to the carriers.

Yoga Laxmi
Social Media Marketer at OpenFR8 | More posts

I am copyright writer with OpenFR8. I take a little bit of time to complete my blogs because I undergo research and analysis of each and every article to gather accurate information. For me, writing is not just a job; it feeds my creativity and desire to share insightful information with readers. As a writer, I like to present content that is valuable and easily understood by every individual. I believe in the power of words, and if they are used in a good manner, they can create many positive changes around us.

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