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January 2024

Federal Motor Carrier Safety Administration Broker and Freight Forwarder Financial Responsibility

On November 16, 2023, the Federal Motor Carrier Safety Administration (“FMCSA”) issued a Final Rule titled Broker and Freight Forwarder Financial Responsibility. See 49 CFR 386-387; 88 FR 78656. The stated purpose of the Rule is to “alleviate the effects of broker or trustee non-payment of claims.” Now, brokers who fail to pay carriers for services rendered will have their operating authority suspended. Additionally, more information will be provided to carriers in an effort to avoid contracting with “unscrupulous brokers.” This new Rule will affect brokers nationally and has anticipated effect on the trucking industry as a whole as it will create very stringent financial requirements for brokers which may lead to brokerage operations’ inability to function as stand-alone service offerings.

Of note, the Rule provides the following:

  • Limitations on trust assets. Now, only cash, irrevocable letters of credit issued by a federally insured depository institution, and Treasury bonds may be maintained in broker or freight forwarder trusts. These assets are used to satisfy claims against brokers who fail to pay for services rendered. Compliance is required by January 16, 2026.
  • Financial security requirements. When a broker or freight forwarder’s available financial security falls below $75,000, the FMCSA may suspend its operating authority registration. An entity has seven days from the security dipping below $75,000 to replenish the funds. Otherwise, the FMCSA will shut the broker or freight forwarder down. Financial institutions are now required to report to the FMCSA when it becomes aware that a freight forwarder or broker has experienced “financial failure or insolvency” and is not cured.  Compliance is required by January 16, 2025.
  • Civil penalties. Now, there are civil penalties and suspensions for surety and trust fund violations: a maximum of $19,933 per day the entity is in violation, and a suspension of the broker registration between 12 and 36 months.

The Rule protects motor carriers while adding new requirements to intermediaries. It is clear that the FMCSA believes non-payment by brokers is a serious problem, so these efforts are laudable. However, we believe this may have unintended consequences for motor carriers that also handle some brokerage responsibilities. Carriers who conduct or oversee even a scintilla of brokerage, freight forwarding, or 3PL activity should ensure compliance with the FMCSA intermediary regulations such as this new Rule. The line between a carrier and a broker continues to be blurred, and the plaintiff’s bar is quick to conflate the two. Thus, the best defense is to proactively mandate strict compliance.

Please reach out to GRSM Trucking and Transportation Practice Group with questions or requests for more information. 

Trucking & Transportation

Richard E. Daniels
Kelly V. Milam

Trucking & Transportation