Broker and Freight Forwarder Financial Responsibility

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This post is part of a series sponsored by IAT Insurance Group.

The Federal Motor Carrier Safety Administration (FMCSA) issued a final rule effective Jan. 16 that introduces new requirements across five areas of financial responsibility for brokers and freight forwarders. Regulations have been amended in the following categories: assets readily available, immediate suspension, financial failure or insolvency, enforcement authority and trustee eligibility requirements.

The new rule originated from the 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21 Act), enacted to support the FMCSA to reduce the amount of regulation across multiple industries and improve compliance.

5 areas of financial responsibility with new regulations

New brokers and freight forwarders established on or after Jan. 16, 2024 are required to abide by all aspects of the new law from their inception. Brokers and freight forwarders in existence prior to Jan. 16, 2024 are grandfathered in with the eligible trustees and readily available funds areas of the law, but must immediately comply with the other three area amendments.

Here are the five trust fund areas affected by the new law:

  1. Assets readily available: Effective for new businesses: Jan. 16, 2024; effective for existing businesses: Jan. 16, 2026

Broker and freight forwarder trust funds are required to have assets readily available and that can be liquidated within seven calendar days in the event payment is required. If, for example, there is an accident, damaged freight or a lost container and the broker or freight forwarder fails to respond to the claimant, the claimant may make the claim directly to the financial institution holding the trust. This rule enables the claimant to seek reimbursement directly from the financial institution.

  1. Immediate suspension: Effective for all businesses: Jan. 16, 2024

The threshold for funds required to be in a trust has been raised from $25,000 to $75,000. If a trust fund falls below the $75,000 threshold, the broker/freight forwarder has a seven-day grace period to replenish the account to the minimum allowable amount of $75,000 or they will face immediate suspension by the FMCSA.

  1. Financial failure or insolvency: Effective for all businesses: Jan. 16, 2024

If the broker/freight forwarder fails to replenish adequate funds, they will remain under suspension and may incur additional fines imposed by the FMCSA, who prior to this new ruling did not have the authority to impose these consequences. Under this rule, trustees are required to report broker/freight forwarders that are experiencing financial failure or insolvency to the FMCSA.

  1. Enforcement authority: Effective for all businesses: Jan. 16, 2024

If a trustee does not alert the FMCSA of a broker/freight forwarder’s financial failure or insolvency after they’ve discovered it, the trustee may incur penalties. Depending on the circumstances, penalties issued by the FMCSA could include suspension of the trust fund provider’s authority and/or monetary fines.

  1. Trustee eligibility requirements: Effective for new businesses: Jan. 16, 2024; effective for existing businesses: Jan. 16, 2026

Loan and finance companies are no longer eligible to serve as trustees under the new law since these providers aren’t held to the same rigorous standards as banks and insurance companies. Existing businesses that use a loan or finance company will have less than two years to replace their trustee with an approved or eligible provider, such as a bank or insurance company.

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By Nancy Ross Anderson

Topics
Agencies
Trucking

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