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Broker and Freight Forwarder Financial Responsibility Publication: Federal Register Agency: Federal Motor Carrier Safety Administration Byline: Robin Hutcheson Date: 5 January 2023 Subjects: American Government  , Trucking
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[Federal Register Volume 88, Number 3 (Thursday, January 5, 2023)]
[Proposed Rules]
[Pages 830-854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28259]
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DEPARTMENT OF TRANSPORTATION
Federal Motor Carrier Safety Administration
49 CFR Parts 386 and 387
[Docket No. FMCSA-2016-0102]
RIN 2126-AC10
Broker and Freight Forwarder Financial Responsibility
AGENCY: Federal Motor Carrier Safety Administration (FMCSA), Department
of Transportation (DOT).
ACTION: Notice of proposed rulemaking.
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SUMMARY: FMCSA proposes the implementation of certain requirements
under the Moving Ahead for Progress in the 21st Century Act (MAP-21).
Previously, FMCSA implemented the MAP-21 requirement to increase the
financial security amount for brokers from $25,000 to $75,000 for
household brokers and from $10,000 to $75,000 for all other property
brokers and, for the first time, established financial security
requirements for freight forwarders. The agency proposes regulations in
five separate areas: Assets readily available; immediate suspension of
broker/freight forwarder operating authority; surety or trust
responsibilities in cases of broker/freight forwarder financial failure
or insolvency; enforcement authority; and entities eligible to provide
trust funds for form BMC-85 trust fund filings.
DATES: Comments must be received on or before March 6, 2023.
ADDRESSES: You may submit comments identified by Docket Number FMCSA-
2016-0102 using any of the following methods:
Federal eRulemaking Portal: Go to https://www.regulations.gov/docket/FMCSA-2016-0102/document. Follow the online
instructions for submitting comments.
Mail: Dockets Operations, U.S. Department of
Transportation, 1200 New Jersey Avenue SE, West Building, Ground Floor,
Room W12-140, Washington, DC 20590-0001.
Hand Delivery or Courier: Dockets Operations, U.S.
Department of Transportation, 1200 New Jersey Avenue SE, West Building,
Ground Floor, Room W12-140, Washington, DC
[[Page 831]]
20590-0001, between 9 a.m. and 5 p.m., Monday through Friday, except
Federal holidays. To be sure someone is there to help you, please call
(202) 366-9317 or (202) 366-9826 before visiting Dockets Operations.
Fax: (202) 493-2251.
FOR FURTHER INFORMATION CONTACT: Mr. Jeffrey L. Secrist, Chief,
Registration, Licensing, and Insurance Division, Office of
Registration, FMCSA, 1200 New Jersey Avenue SE, Washington, DC 20590-
0001 or by phone at (202) 385-2367; Jeffery.Secrist@dot.gov. If you
have questions on viewing or submitting material to the docket, call
Dockets Operations at (202) 366-9826.
SUPPLEMENTARY INFORMATION: FMCSA organizes this notice of proposed
rulemaking (NPRM) as follows:
I. Public Participation and Request for Comments
A. Submitting Comments
B. Viewing Comments and Documents
C. Privacy
D. Comments on the Information Collection
II. Executive Summary
A. Purpose and Summary of the Regulatory Action
B. Summary of Major Provisions
C. Costs and Benefits
III. Abbreviations
IV. Legal Basis
V. Background
VI. Comments on the Advance Notice of Proposed Rulemaking (ANPRM)
A. Group Surety Bond and Group Trust Fund
B. Assets Readily Available
C. Immediate Suspension of Broker and Freight Forwarder
Operating Authority
D. Surety or Trust Responsibilities in Cases of Broker or
Freight Forwarder Financial Failure or Insolvency
E. Enforcement Authority
F. Entities Eligible To Provide BMC-85 Trust Fund Filings
G. Revisions to Forms BMC-84 and BMC-85
H. Household Goods (HHG)
I. Market's Ability To Address Broker/Freight Forwarder
Noncompliance
J. Comments on Impact of Regulatory Changes
K. Miscellaneous Comments on the ANPRM
VII. Discussion of Proposed Rulemaking
VIII. Section-by-Section Analysis
IX. Regulatory Analyses
A. Executive Order (E.O.) 12866 (Regulatory Planning and
Review), E.O. 13563 (Improving Regulation and Regulatory Review),
and DOT Regulatory Policies and Procedures
B. Congressional Review Act
C. Advance Notice of Proposed Rulemaking
D. Regulatory Flexibility Act (Small Entities)
E. Assistance for Small Entities
F. Unfunded Mandates Reform Act of 1995
G. Paperwork Reduction Act (Collection of Information)
H. E.O. 13132 (Federalism)
I. Privacy
J. E.O. 13175 (Indian Tribal Governments)
K. National Environmental Policy Act of 1969
I. Public Participation and Request for Comments
A. Submitting Comments
If you submit a comment, please include the docket number for this
NPRM (FMCSA-2016-0102), indicate the specific section of this document
to which your comment applies, and provide a reason for each suggestion
or recommendation. You may submit your comments and material online or
by fax, mail, or hand delivery, but please use only one of these means.
FMCSA recommends that you include your name and a mailing address, an
email address, or a phone number in the body of your document so FMCSA
can contact you if there are questions regarding your submission.
To submit your comment online, go to https://www.regulations.gov/docket/FMCSA-2016-0102/document, click on this NPRM, click ``Comment,''
and type your comment into the text box on the following screen.
If you submit your comments by mail or hand delivery, submit them
in an unbound format, no larger than 8\1/2\ by 11 inches, suitable for
copying and electronic filing. If you submit comments by mail and would
like to know that they reached the facility, please enclose a stamped,
self-addressed postcard or envelope.
FMCSA will consider all comments and material received during the
comment period.
Confidential Business Information (CBI)
CBI is commercial or financial information that is both customarily
and actually treated as private by its owner. Under the Freedom of
Information Act (5 U.S.C. 552), CBI is exempt from public disclosure.
If your comments responsive to the NPRM contain commercial or financial
information that is customarily treated as private, that you actually
treat as private, and that is relevant or responsive to the NPRM, it is
important that you clearly designate the submitted comments as CBI.
Please mark each page of your submission that constitutes CBI as
``PROPIN'' to indicate it contains proprietary information. FMCSA will
treat such marked submissions as confidential under the Freedom of
Information Act, and they will not be placed in the public docket of
the NPRM. Submissions containing CBI should be sent to Mr. Brian
Dahlin, Chief, Regulatory Analysis Division, Office of Policy, FMCSA,
1200 New Jersey Avenue SE, Washington, DC 20590-0001. Any comments
FMCSA receives not specifically designated as CBI will be placed in the
public docket for this rulemaking.
B. Viewing Comments and Documents
To view any documents mentioned as being available in the docket,
go to https://www.regulations.gov/docket/FMCSA-2016-0102/document and
choose the document to review. To view comments, click this NPRM, then
click ``Browse Comments.'' If you do not have access to the internet,
you may view the docket online by visiting Dockets Operations in Room
W12-140 on the ground floor of the DOT West Building, 1200 New Jersey
Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays. To be sure someone is there to
help you, please call (202) 366-9317 or (202) 366-9826 before visiting
Dockets Operations.
C. Privacy
DOT solicits comments from the public to better inform its
regulatory process, in accordance with 5 U.S.C. 553(c). DOT posts these
comments, without edit, including any personal information the
commenter provides, to www.regulations.gov, as described in the system
of records notice (DOT/ALL 14--Federal Docket Management System), which
can be reviewed at https://www.govinfo.gov/content/pkg/FR-2008-01-17/pdf/E8-785.pdf.
D. Comments on the Information Collection
Written comments and recommendations for the information collection
discussed in this NPRM should be sent within 60 days of publication to
www.reginfo.gov/public/do/PRAMain. Find this information collection by
clicking the link that reads ``Currently under Review--Open for Public
Comments'' or by entering Office of Management and Budget (OMB)
information request control number 2126-0017 in the search bar and
clicking on the last entry to reach the ``comment'' button.
II. Executive Summary
A. Purpose and Summary of the Regulatory Action
FMCSA proposes modifications to broker and freight forwarder
financial responsibility requirements.
B. Summary of Major Provisions
This NPRM proposes modification in five regulatory areas.
[[Page 832]]
Assets Readily Available. The NPRM proposes allowing brokers or
freight forwarders to meet the MAP-21 requirement to have ``assets
readily available'' by maintaining trusts that meet certain criteria,
including that the assets can be liquidated within 7 calendar days of
the event that triggers a payment from the trust, and that do not
contain certain assets as specified in this NPRM.
Immediate Suspension of Broker/Freight Forwarder Operating
Authority. The NPRM proposes that ``available financial security''
falls below $75,000 when there is a drawdown on the broker or freight
forwarder's surety bond or trust fund. This would happen when a broker
or freight forwarder consents to a drawdown, or if the broker or
freight forwarder does not respond to a valid notice of claim from the
surety or trust provider, causing the provider to pay the claim, or if
the claim against the broker or freight forwarder is converted to a
judgment and the surety or trust provider pays the claim. FMCSA also
proposes that, if a broker or freight forwarder does not replenish
funds within 7 business days after notice by FMCSA, the agency will
issue a notification of suspension of operating authority to the broker
or freight forwarder.
Surety or trust responsibilities in cases of broker/freight
forwarder financial failure or insolvency. FMCSA proposes to define
``financial failure or insolvency'' as bankruptcy filing or State
insolvency filing. This proposal also requires that if the surety/
trustee is notified of any insolvency of the broker or freight
forwarder, it must notify FMCSA and initiate cancelation of the
financial responsibility. In addition, FMCSA proposes to publish a
notice of failure in the FMCSA Register immediately.\1\
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\1\ The FMCSA Register is available at https://li-public.fmcsa.dot.gov/LIVIEW/pkg_menu.prc_menu.
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Enforcement Authority. FMCSA proposes that to implement MAP-21's
requirement for suspension of a surety provider's authority, the agency
would first provide notice of the suspension to the surety/trust fund
provider, followed by 30 calendar days for the surety or trust fund
provider to respond before a final Agency decision is issued. The
agency also proposes to add penalties in 49 CFR part 386, appendix B,
for violations of the new requirements.
Entities Eligible To Provide Trust Funds for BMC-85 Filings. FMCSA
proposes to remove the rule allowing loan and finance companies to
serve as BMC-85 trustees.
C. Costs and Benefits
Brokers and freight forwarders, surety bond and trust fund
providers, and the Federal Government would incur costs for compliance
and implementation. The quantified costs of the proposed rule include
notification costs related to a drawdown on a surety bond or trust
fund, and immediate suspension proceedings, FMCSA costs to hire new
personnel, and costs associated with the development and maintenance of
the BMC-84/85 Filing and Management Information Technology (IT) System.
As shown in Table 1, FMCSA estimates that the 10-year cost of the
proposed rule would total $5.4 million on an undiscounted basis, $3.8
million discounted at 7 percent, and $4.6 million discounted at 3
percent (all in 2020 dollars). The annualized cost of the rule would be
$545,505 discounted at 7 percent and $542,343 at 3 percent. Ninety-
eight percent of the costs would be incurred by the Federal Government.
Table 1--Total Cost of the Proposed Rule
[In 2020 $]
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Undiscounted Discounted
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Year Brokers and Financial
freight responsibility Federal govt. Total \a\ Discounted at Discounted at
forwarders providers 7 percent 3 percent
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2025................................................. $2,600 $3,800 $691,900 $698,200 $652,600 $677,900
2026................................................. 2,800 4,100 512,000 518,900 453,200 489,100
2027................................................. 3,100 4,500 512,000 519,600 424,200 475,500
2028................................................. 3,400 4,900 512,100 520,400 397,000 462,400
2029................................................. 3,700 5,400 512,200 521,300 371,700 449,700
2030................................................. 4,000 5,900 512,300 522,200 348,000 437,300
2031................................................. 4,400 6,500 512,400 523,300 325,900 425,500
2032................................................. 4,800 7,100 512,500 524,400 305,200 414,000
2033................................................. 5,300 7,700 512,600 525,600 285,900 402,800
2034................................................. 5,800 8,500 512,700 527,000 267,900 392,100
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Total............................................ 39,800 58,400 5,302,700 5,400,900 3,831,400 4,626,300
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Annualized................................... .............. ................. .............. .............. 545,505 542,343
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Notes:
\a\ Total cost values may not equal the sum of the components due to rounding (the totals shown in this column are the rounded sum of unrounded
components).
This proposed rule would result in benefits to motor carriers.
FMCSA is aware that some brokers improperly choose to withhold payment
to motor carriers for services rendered. Motor carriers can then submit
claims to the financial responsibility provider in an attempt to
receive payment. If the financial responsibility provider has received
claims against an individual broker that exceed $75,000, the financial
responsibility provider will often submit the claims to a court in an
interpleader action \2\ to determine how to allocate the broker bond or
trust fund. The interpleader process can be costly and time consuming
for motor carriers, and generally results in motor carrier claims being
paid pro rata, depending on the number of claims against the broker
bond or trust fund. FMCSA
[[Page 833]]
believes that most brokers operate with integrity and uphold the
contracts made with motor carriers and shippers. However, a minority of
brokers with unscrupulous business practices can create unnecessary
financial hardship for unsuspecting motor carriers.
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\2\ ``By definition, interpleader is a suit to determine a right
to property held by a disinterested third party who is in doubt
about ownership and who deposits the property with the court so that
interested parties can litigate ownership.'' Scottrade, Inc. v.
Davenport, No. CV-11-03-BLG-RFC, 2011 WL 153999, at *1 (D. Mont.
Apr. 21, 2011).
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FMCSA is relying on available data from which to draw an estimated
percentage of how many brokers fail to pay motor carriers. The Agency's
best estimate is that approximately 1.3 percent of brokers
(approximately 440 in 2022) would experience a drawdown on their surety
bond or trust fund within a given year, with average claim amounts of
approximately $1,700 per claim submitted. Of these brokers, 17 percent
may receive total claims in excess of $75,000, potentially leading to
interpleader proceedings. Because this data is limited in scope, FMCSA
cannot quantify benefits resulting from this proposal. It is FMCSA's
intent that the provisions in this rule, if finalized, would mitigate
the need to initiate interpleader proceedings and alleviate the concern
of broker non-payment of claims.
III. Abbreviations
ANPRM Advance Notice of Proposed Rulemaking
ATA American Trucking Associations
CSBS Conference of State Banking Supervisors
DOT Department of Transportation
E.O. Executive Order
FDIC Federal Deposit Insurance Corporation
FMC Federal Maritime Commission
FR Federal Register
HHG Household Goods
ILOC Irrevocable Letter of Credit
IT Information Technology
IRFA Initial Regulatory Flexibility Analysis
MAP-21 The Moving Ahead for Progress in the 21st Century Act
NPRM Notice of Proposed Rulemaking
NRSRO Nationally Recognized Statistical Rating Organization
OIRA Office of Information and Regulatory Affairs
OMB Office of Management and Budget
OOIDA Owner-Operator Independent Driver's Association
TIA Transportation Intermediaries Association
Treasury United States Department of the Treasury, Federal Insurance
Office
UMRA The Unfunded Mandates Reform Act of 1995
U.S.C. United States Code
IV. Legal Basis for the Rulemaking
In 2012, Congress enacted MAP-21 (Pub. L. 112-141, 126 Stat. 405,
822), section 32918 which contained requirements for the financial
security of brokers and freight forwarders in amendments to 49 U.S.C.
13906(b) and (c). Section 32918(b) of MAP-21 (note to 49 U.S.C. 13906)
directed the Secretary to issue regulations to implement and enforce
the requirements under subsections (b) and (c) of section 13906.
Authority to carry out and enforce these provisions has been delegated
to the Administrator of FMCSA. (49 CFR 1.87(a)(5))
V. Background
A ``broker'' is a ``person . . . that as a principal or agent
sells, offers for sale, negotiates for, or holds itself out by
solicitation, advertisement, or otherwise as selling, providing, or
arranging for, transportation by motor carrier for compensation.'' 49
U.S.C. 13102(2); see also 49 CFR 371.2(a)(FMCSA regulatory definition
of ``Broker''). A ``freight forwarder'' is defined as ``a person
holding itself out to the general public (other than as a pipeline,
rail, motor, or water carrier) to provide transportation of property
for compensation and in the ordinary course of its business'' (1)
performs certain services including assembly, break-bulk or
distribution services, (2) ``assumes responsibility for the
transportation from the place of receipt to the place of destination''
and (3) ``uses for any part of the transportation a carrier'' such as a
motor carrier. 49 U.S.C. 13102(8); see also 49 CFR 387.401(a)(FMCSA
regulatory definition of freight forwarder).
Pursuant to 49 U.S.C. 13906(b), (c), brokers and freight forwarders
must maintain financial security for the circumstance in which the
broker or freight forwarder does not pay a motor carrier for services
it provides. Prior to MAP-21, FMCSA required brokers to maintain
financial security in the amount of $10,000 ($25,000 for household
goods brokers). In MAP-21, Congress increased the broker financial
responsibility requirement to $75,000 and extended those requirements
to freight forwarders for the first time. (codified at 49 U.S.C.
(b)(3), (c)(4)).
FMCSA implemented those MAP-21 financial responsibility limit
requirements in a 2013 Omnibus rulemaking, 78 FR 60226 (Oct. 1, 2013),
codified at 49 CFR 387.307(a) (brokers) and 49 CFR 387.403T(c) and
387.405 (freight forwarders). As a condition to obtain registration,
brokers and freight forwarders must provide evidence of either a surety
bond by filing a form BMC-84 or a trust fund by filing a form BMC-85
with the Agency.
A. Rulemaking History
In May 2016, FMCSA gathered stakeholders for an informal roundtable
discussion on broker/freight forwarder financial responsibility (81 FR
24935, 24936, Apr. 27, 2016). Representatives of brokers, freight
forwarders, motor carriers, surety providers, and trust fund providers
participated in the roundtable and provided public comments to the
docket established for the meeting. A transcript of this meeting is
available in the docket for this rulemaking.
On September 27, 2018, FMCSA published an advance notice of
proposed rulemaking (83 FR 48779) (ANPRM). The ANPRM indicated that the
Agency was considering changes or additions in eight separate areas:
Group surety bonds/trust funds; assets readily available; immediate
suspension of broker/freight forwarder operating authority; surety or
trust responsibilities in cases of broker/freight forwarder financial
failure or insolvency; enforcement authority; entities eligible to
provide trust funds for form BMC-85 trust fund filings; Form BMC-84 and
BMC-85 trust fund revisions; and household goods (HHG). The Agency
sought comments and data in response to the ANPRM.
B. Related Activities
When considering the data FMCSA received from its ANPRM, the Agency
sought input from two Federal regulatory agencies, and based upon their
suggestions reached out to several non-Federal entities as well. FMCSA
appreciates the information shared by these entities, some of which
helped inform our responses to comments on the ANPRM below. FMCSA met
with the following entities:
1. United States Department of the Treasury, Federal Insurance
Office (Treasury) on September 24, 2020.
2. Federal Deposit Insurance Corporation (FDIC) on October 13,
2020. In addition to offering their own thoughts, FDIC representatives
suggested that FMCSA contact the Conference of State Banking
Supervisors (CSBS) regarding relevant State regulations, sureties,
trusts, and the regulation of broker and freight forwarder trust fund
providers.
3. CSBS. FMCSA met with CSBS staff on October 14, 2020. FMCSA asked
CSBS about oversight of financial companies including ``loan or finance
companies,'' as well as definitions.
4. Florida Office of Financial Regulation on February 4, 2021.
FMCSA asked for input regarding State regulation of entities providing
financial responsibility.
5. Texas Office of Consumer Credit Commissioner on February 11,
2021. FMCSA shared relevant regulatory text and forms, as well as
information regarding BMC-85 trust fund filers based in Texas.
[[Page 834]]
VI. Comments and Resposes to the ANPRM
FMCSA received 33 comments responsive to the ANPRM: 18 from
individuals, 2 from a motor carrier and an owner-operator, 6 from trade
organizations, 1 from a factoring company, 6 from surety providers or
trust fund providers. Of the surety providers, one provided both BMC-84
surety bonds and BMC-85 trust funds and three provided BMC-84 sureties
only. Two commenters provided BMC-85 trust funds. Seven commenters,
including the Transportation Intermediaries Association (TIA), American
Trucking Associations (ATA), and the Owner-Operator Independent
Driver's Association (OOIDA), voiced their general support for the
agency's plan to implement rulemaking. Two commenters objected to any
rulemaking.
In the ANPRM, FMCSA asked for comments and data on eight areas
related to broker and freight forwarder financial responsibility. To
organize responses, the agency provided a list of 17 issues and asked
commenters to address their comments to these issues (83 FR at 48786).
A. Group Surety Bond and Group Trust Fund
FMCSA specifically sought comment on the definitions of group
surety bond and group trust fund and how the agency could administer
such a group surety or trust option given its limited resources.
Definition of Group Surety Bond or Group Trust Fund Including Responses
to ``How could the Agency administer a group surety bond or group trust
fund?''
Only one commenter attempted to provide a definition of group
surety bond. The surety provider would define a group bond to mean
``any number of Freight Brokers and/or Freight Forwarders who operate
as a group or association under the MAP-21 section 32918 and file a
surety instrument collectively to ensure compliance individually to the
financial responsibility requirement of the above section. This surety
instrument shall be available to pay any claim pursuant to the above
regulations.'' Based on the success of the Federal Maritime Commission
(FMC) in administering a group surety bond option, this commenter
recommended that FMCSA follow the guidelines of the FMC group bond,
stating that FMCSA and FMC share common objectives. A trade
organization appeared to define group financial responsibility by
referencing the FMC regulations in 46 CFR 515.21(b). It also
recommended that FMCSA follow FMC's lead.
A trade organization stated that while multiple bond principals may
be covered under a single bond, there is no specific definition of what
constitutes a group bond. It noted that a bond with multiple principals
is far less common than one with a single principal. The commenter
believed that such a bond program would require the formation of a
group or association of principals that have agreed among themselves to
accept liability for the total financial responsibility and bonded
activities of the group. The surety could then underwrite the bond,
prequalifying each principal.
Another trade organization opposed any attempt to define group
surety bonds or group trust funds. It maintained that any attempt would
waste FMCSA's resources and harm motor carriers and drivers. Two
commenters agreed that group surety bonds or trust funds would create
an administrative burden for FMCSA and present the possibility of
increased risk. They recommended that FMCSA not allow group trust funds
or group bonds.
A trust fund provider recommended the following guidelines for the
group or association providing a surety instrument for its members and
believed they would not encumber the agency. The recommended guidelines
would include: (1) providing coverage using an internal letter of
credit guaranteed by dedicated assets; (2) annually providing audited
financial statements to confirm stated assets, accompanied by an
opinion letter from the certified public accounting firm conducting the
audit; (3) establishing financial responsibility in an internal letter
of credit in an amount equal to the lesser of the total individual
member's liability or the aggregate amount; and (4) having an aggregate
of $3 million for the group bond (based on the model of the FMC group
bond).
Regarding the freight broker industry, a surety provider believed
there is no need for group surety bonds or group trust funds, ``nor an
appetite to offer it in the surety industry.'' The commenter wrote that
the group surety bond or trust fund proposal does not provide an
adequate model for the agency to ensure the levels of financial
security as described by the statute. If FMCSA does not have the
resources or expertise to regulate claims, the commenter recommended it
not consider adding another option to satisfy the financial guarantee
requirement.
In the absence of any evidence that demand for broker/freight
forwarder securities cannot be met if the agency does not accept group
sureties or trust funds, one trade organization commented it would be
difficult to justify the burden for FMCSA of monitoring the sufficiency
of group instruments. This commenter believed carriers would be wary of
the uncertainty if brokers and freight forwarders were permitted to
meet their financial responsibility requirements through group
securities, which would open the door to a lower aggregate amount of
assets available to pay claims.
Comments on the FMC Model
A surety provider commented that providing a definition for a group
trust fund would be difficult, ``as the FMCSA would be the first in the
nation to accept such an instrument.'' It noted that the FMC group
surety bond is not a group bond/trust but a group surety bond, backed
by insurance carriers that are regulated by government agencies other
than the FMC. The commenter wrote that such a group trust fund would
need to have a dollar funded in the trust for each dollar of liability:
if a group trust fund had 100 freight brokers in the group, it would
require $7.5 million ($75,000 x 100) in funds available. Anything less
``provides no benefit over a singular BMC-85 trust fund, but many
distinct disadvantages [that] would pose additional risk.'' Another
commenter, a trade organization, recommended that the agency simply
require individual surety bonds based upon the FMC requirements. It
wrote that FMCSA should not accept group surety bonds and trust funds
until the agency fulfills the basic requirements to ensure that BMC-85
trusts are fully funded.
Another trade organization believed the approach used by the ocean
transportation industry may not be transferable to highway
transportation because the two industries are drastically different,
and the oversight exerted by FMC and FMCSA is also vastly different.
Another surety provider provided background on FMC's rules, and
reported that nearly 90 percent of foreign firms, and nearly 97 percent
of all non-vessel operating common carriers, do not choose to make use
of a group alternative. Noting this minimal use of FMC's group
instrument, this commenter believed that individual bonding is
sufficient to meet the needs of the marketplace and any group bond or
trust is not necessary. This commenter also noted that, while the FMC
regulations provide for a maximum liability limit of $3 million for a
group bond, each member listed is required by regulation to maintain an
individual level of financial responsibility of $75,000 (if in the
U.S.)
[[Page 835]]
or $150,000 (if foreign). This commenter stated that, if FMCSA adopts
the use of a group bond or group trust, the instrument cannot be
allowed to provide any amount of coverage less than that which each
member would provide the public individually.
FMCSA response: FMCSA is not proposing new regulations concerning
group surety bonds or trust funds. FMCSA considered proposing a
definition, including those definitions submitted in the comments, but
ultimately declines to do so. There was no consensus or commonly used
definition of group bond or group fund, and several commenters
supporting the use of group instruments also pointed out areas of
concern. While some commenters advocated for the inclusion of a group
surety bond or trust fund, the benefits were not well-explained or
quantified by commenters. Moreover, the TIA, which appears to have
supported inclusion of the group option in MAP-21 based upon the FMC
model, later acknowledged that such an option was not transferrable to
freight brokers or freight forwarders.
FMCSA agrees with the commenter who noted that there is no evidence
that the demand for individual instruments is not being met and that it
would be difficult to justify the burden on FMCSA to monitor group
instruments. FMCSA also finds it highly compelling that the original
proponent of the group model no longer supports its inclusion as an
option. In addition, FMCSA agrees with commenters that if the agency
were to propose this group option, FMCSA would need to increase
oversight to combat fraud. Given that FMCSA is primarily responsible
for safety regulation and does not have extensive expertise in or
resources for financial regulation, the agency believes focusing on
existing financial tools to be the best use of its resources.
Due to the complexity and lack of an existing regulatory
definition, FMCSA declines to propose allowing group surety bonds or
group trust funds to provide financial responsibility.
Other Comments Related to Group Surety Bonds or Group Trust Funds
By following FMC's lead and allowing group financial security for
surface transportation intermediaries, one trade organization believed
FMCSA could ``minimize the devastating effect of the anti-competitive
$75,000 financial security imposed by Congress.''
A surety provider wrote that if FMCSA allows group surety bonds or
trust funds, the surety industry will not offer them as an option,
because the surety industry underwrites each freight broker on its own
merits, not in groups. This commenter noted further that, because the
FDIC provides insurance coverage of $250,000 per depositor per FDIC-
insured bank, each trustee should establish a separate bank account for
every trust filed, in order to minimize the risk of claims.
FMCSA response: FMCSA appreciates these comments. As noted above,
FMCSA declines to propose allowing group surety bonds or group Trust
Funds to provide financial responsibility.
B. Assets Readily Available
MAP-21 Section 32918 required that trust funds or other financial
security be limited only to ``assets readily available to pay claims
without resort to personal guarantees or collection of pledged accounts
receivable.'' 49 U.S.C. 13906(b)(1)(C) and (c)(1)(D). The agency asked
for suggestions from the trust fund industry and others about
instruments the agency could accept that would meet the ``assets
readily available'' standard without requiring significant FMCSA
oversight or evaluation that would divert scarce safety oversight
resources.
How should assets readily available be defined?
In the ANPRM, the agency wrote that it is committed to adopting a
definition of assets readily available for BMC-85 trust fund assets
that both implements the will of Congress and is reasonable for the
agency to administer. FMCSA wrote it was considering proposing a
definition of assets readily available that would include cash or
letters of credit from FDIC-approved banks, but said it was open to
other options. (83 FR 48783)
A number of commenters agreed that assets readily available should
include only cash or letters of credit from FDIC-approved banks, with
others indicating cash bonds should be allowable; some of these
commenters noted that only cash or equally liquid assets would satisfy
the statutory mandate. A surety provider noted that the May 2016
roundtable discussion on this subject provided a general consensus that
cash and letters of credit drawn on FDIC-approved banks should be
acceptable. A trade organization commented that FMCSA must require
trusts to be funded with cash or an equally liquid equivalent asset,
such as an irrevocable letter of credit drawn on a federally regulated
bank or trust company. One trade organization believed the only
sufficient trust fund or surety funding sources are cash and an
unconditional FDIC insured letter of credit, with the funds placed in a
segregated account to be used solely for carrier claims.
These commenters stated that finance bonds should not be allowed,
and that BMC-85s exist only because FMCSA allows them; FMCSA therefore
should regulate and provide oversight of them.
Some commenters were concerned that some BMC-85 trustees may be
comingling the available financial securities of brokers with other
brokers' securities and even with the trustee's general operating
accounts. A commenter wrote that the use of ``unknown, hybrid, and
possibly unenforceable internal debt instruments in lieu of cash or
FDIC insured letters of credit violates the fiduciary responsibilities
of BMC-85 trustees and undermines the objective of ensuring that
brokers can personally meet the statutory financial requirements.''
Some commenters, including a trade organization, recommended FMCSA
allow letters of credit in the interest of making broker licenses
accessible to start-up businesses and preventing unreasonable obstacles
to entry. An individual commented that it is crucial that FMCSA support
``the BMC-85 insurance products currently available to brokers in lieu
of forcing brokers to have $75,000 available in cash at all times to
pay claims.'' This commenter believed that larger third-party logistics
and broker entities otherwise will force smaller companies out of
business, which will enable those larger companies to drive up rates. A
commenter questioned whether FMCSA can limit the interpretation of
``assets readily available'' beyond saying that they are not personal
guarantees or a collection of pledged accounts receivable, as provided
in MAP-21. However, this commenter proposed using its ``internal letter
of credit plan,'' $75,000 in cash, and/or a combination of a letter of
credit supplied by an FDIC-insured bank to the surety provider. If
interpretations relating to financial responsibility proposed by BMC-84
suppliers are implemented, this commenter believed, several BMC-85
providers may be forced out of the marketplace and the choices
available to freight brokers and forwarders could be severely limited.
Another commenter believed the definition of ``assets readily
available'' should be expansive enough to include ``all kinds of
investments.'' The commenter wrote that the term should include
publicly traded securities that can be quickly bought and sold on a
highly regulated open market exchange. The commenter noted that, in
reality, claims are not paid before 30 days of the claim being filed.
[[Page 836]]
A trade organization encouraged the agency to adopt a definition of
assets readily available to include the assets set forth in Federal
Acquisition Regulation 28.204-1-28.204-3, which applies to the type of
securities that may be deposited by a contractor in lieu of a surety
bond on public works. The types of assets are: (1) notes or bonds
issued by the U.S. Government; (2) certified or cashier's check, bank
draft, postal money order, or currency; or (3) an irrevocable letter of
credit issued by a federally insured financial institution rated
investment grade. The commenter maintained that a broader and riskier
asset class would require more intensive monitoring and ongoing
valuation by the agency to ensure that the BMC-85 trust fund remains
capitalized over the $75,000 requirement.
FMCSA response: In an effort to provide flexibility, FMCSA proposes
only a list of prohibited asset types. FMCSA further specifies that
assets considered readily available be able to be made liquid in 7
days. FMCSA believes that its approach strikes the best balance between
allowing multiple ways of complying with the assets readily available
requirement for small businesses and still setting a high standard that
will protect motor carriers and shippers.
Suggest a Process That Would Allow FMCSA To Accept Letters of Credit
and Other Instruments Without Significant Oversight
BMC-84 bond providers are overseen by the Treasury, while BMC-85
trusts are overseen by FMCSA, in addition to other regulators. The
agency solicited suggestions about how it could accept letters of
credit and other instruments that could meet the assets readily
available standard for broker/freight forwarder trust funds without
requiring significant oversight or evaluation that would divert scarce
agency safety resources. (83 FR 48783)
A trade organization wrote that the acceptance of any third-party
collateral instrument, personal guarantees, or a pledge of business
assets should not be considered eligible trust collateral unless the
agency is satisfied with the financial structure of the issuer/obligor
and that it possesses unimpeded access to assets in the event of
payment demand. Because such information is not currently available to
the FMCSA or to motor carriers, any attempt to define or administer
such an option would be wasteful of FMCSA resources and harmful to the
motor carriers and drivers.
A trade organization recommended the agency require the trust to
conduct a regular, independent audit confirming that the trust is fully
funded. It commented that a broader and riskier asset class might
impair the value of the BMC-85 trust fund, trigger a suspension
required under 49 U.S.C. 13906(b)(5) and (c)(6), and require more
intensive monitoring and ongoing valuation by the agency. A surety
provider wrote that FMCSA could verify annually that a letter of credit
issued by an FDIC-insured bank is in force without hardship.
A surety provider suggested that the property broker or freight
forwarder needs to deposit with the trust administrator cash or similar
assets like Treasury debt instruments. It also believed that the trust
could accept a qualified bank letter of credit (e.g., irrevocable and
issued by an FDIC-insured bank), or a qualified surety bond (e.g.,
where the trust administrator is the bond obligee and the surety is
listed on Treasury's Circular 570)--alternatives that provide fast
liquidity and firm valuation. The commenter also provided examples of
assets that are not readily available.
A surety provider rejected the argument that FMCSA accept self-
issued or internal letters of credit. It stated that FMCSA would have
no assurance or control over the quality or quantity of the security
behind the letter of credit. This plan would place an administrative
burden on the agency and increase the potential for losses to the
intended beneficiaries.
A surety provider wrote that, to ensure that assets are readily
available, they must be defined, insured, and verified. While it had
previously recommended defining assets readily available as cash and an
irrevocable letter of credit (ILOC) from an FDIC-insured bank, in
consideration of FMCSA's desire to limit its oversight
responsibilities, this commenter changed its asset recommendation to
cash only. The commenter believed that allowing any other asset would
add to the administrative burden of FMCSA's oversight. Because assets
must be properly insured, the commenter said it is imperative that the
assets be held in an FDIC-insured bank to provide FDIC insurance
coverage of $250,000 per account and ensure that FMCSA does not have to
underwrite or question the solvency of the bank holding the assets. The
commenter maintained that an ILOC is not insured by the FDIC (even if
issued by an FDIC-insured bank) unless there is a deposit of cash in an
FDIC-insured bank backing the ILOC. Should FMCSA allow ILOCs, the
commenter said FMCSA would have to verify whether each bank backing the
ILOC was FDIC-insured, and that the balance was under the $250,000
insurance threshold. Further, the commenter reasoned that, if cash were
the only accepted form of assets readily available, the trustee could
use one bank to manage all assets, creating a separate account of
$75,000 for each trustor.
This same surety provider also recommended that FMCSA require trust
providers to submit audited financial statements prepared by a licensed
third-party certified public accountant on a quarterly basis, to
lighten FMCSA's administrative burden of verifying assets. If the
acceptable assets were limited to cash, the commenter believed that
FMCSA could easily confirm enough cash is being held by reviewing the
financial statement. However, should FMCSA wish to allow ILOCs, FMCSA
would need to ensure that each BMC-85 has an ILOC from an FDIC-insured
bank along with a bank account with deposits to fund the ILOC in full,
making audits far more complex.
FMCSA response: In this proposal, FMCSA has designed a process that
allows it to accept a wide range of financial instruments without
imposing a burden on the agency's limited resources.
What is the capacity of the surety bond industry to meet increased
demand?
In the ANPRM, FMCSA specifically sought comment from the surety
bond industry on that industry's capacity to meet market demand if
FMCSA were to adopt a cash-only standard for BMC-85 trust funds. The
agency asked whether such a policy could drive a significant segment of
the broker/freight forwarder industry into surety bond coverage.
Commenters responded that they believed surety-bond providers could
meet this demand.
FMCSA response: The agency thanks those commenters but proposes
that certain non-cash instruments could be used to meet this proposed
requirement.
What is the cost to brokers and freight forwarders of BMC-84 surety
bonds?
FMCSA sought comments and data from the surety bond industry on the
cost to brokers and freight forwarders of BMC-84 surety bonds. In
response to this issue, one trust provider commented that the question
should not be the cost to brokers of BMC-84 surety bonds, but what
percentage of the market currently serviced by BMC-85 providers will be
lost. This commenter noted that BMC-85 providers service roughly 25
percent of the total licensed freight brokers and freight forwarders in
the country.
[[Page 837]]
One trade organization and three surety providers provided a range
of estimates of the cost of a bond. The trade organization reported
that a BMC-84 bond will typically cost its principal 1 to 2 percent of
the face value of the bond. A creditworthy broker or freight forwarder
would expect to pay approximately $750 to $1,500 to obtain a $75,000
BMC-84 bond. The commenter did not expect that cost to increase, even
with increased demand for the bonds. A surety provider wrote that
pricing for this class of bond usually ranges from 2 to 5 percent of
the amount of the bond, calculated and charged on an annual basis. The
commenter noted that the pricing range is typically driven by the
credit strength of the business and qualified indemnitors. Another
surety provider commented that typical costs for license and permit
bonds run from 1 to 4 percent of the face amount of the bond. A third
surety provider reported that average surety premiums have dropped each
year since 2013 with rates as low as $750 per year.\3\ Due to the
increased surety competition, while coverage has increased 750 percent
(from $10,000 to $75,000), typical costs incurred by freight brokers/
forwarders for their annual premiums have risen only 15 to 30 percent.
---------------------------------------------------------------------------
\3\ According to comments provided in 2020 in connection with
the Small Business in Transportation Coalition's petition for
exemption from the $75,000 financial responsibility requirement, the
annual surety bond premium is less than $2,000 on average. 86 FR
71538, 71542 (Dec. 16, 2021).
---------------------------------------------------------------------------
FMCSA response: FMCSA appreciates the comments provided and
believes it has sufficient information on the cost of BMC-84 surety
bonds to inform this proposed rule.
Other Comments Related to Assets Readily Available
Some commenters noted other issues related to assets readily
available. Several commenters were concerned with what they believed
are irregularities in the BMC-85 trust fund industry. A trade
organization commented that a major concern is that certain trust fund
operators are not following the laws and regulations, to the detriment
of safety. If small motor carriers are not paid, necessary maintenance
and repairs may be put off or ignored due to reduced cash flow.
One trade organization recommended that, in order for a BMC-85
trust fund to be equivalent to a surety bond, the BMC-85 trust fund
should have a prequalification function, where a surety reviews the
capabilities and financial strength of a bond applicant. It believed an
adequate version of prequalification can be achieved if the broker or
freight forwarder is required to fund the BMC-85 trust with its own
assets. In this way, the agency and carriers would have the assurance
that the brokers and freight forwarders have the operational capability
to commit $75,000 of their own assets into the fund.
A surety bond provider expressed the belief, based on the comments
at the roundtable and the definition of a trustee, that most BMC-85
providers are not trustees but are providing unregulated surety bond
insurance without a license to do so. This commenter indicated that
FMCSA must regularly examine trust providers to ensure that the defined
assets meet the aggregate liability of the trust provider.
A surety provider commented that, if trusts are to be funded with a
limited category of assets, without requiring significant FMCSA
oversight or evaluation, trust fund administrators should be allowed to
invest the assets only in highly-liquid, short duration, and very safe
investments, and it provided examples. The commenter recommended that
all investments should be easily provable to the FMCSA, e.g., via
investment account and bank account statements. Finally, assets under
trust must never be comingled with the accounts of the trust
administrator that are utilized for its day-to-day business needs.
Two commenters responded to the concern about the financial
wherewithal of BMC-85 trust providers and the sufficiency of the assets
in BMC-85 trusts to pay legitimate claims by motor carriers or
shippers. A commenter noted FMCSA's statement in the ANPRM that
representatives of the BMC-85 trust fund provider community asserted
that, with one limited exception, no evidence had been provided showing
that BMC-85 providers have failed to pay legitimate claims made on
their trusts by motor carriers or shippers to any significant degree.
The commenter also believed that no legitimate stakeholder who had
suffered any financial losses had appeared. This commenter therefore
did not believe that rulemaking in this regard is necessary.
A BMC-85 trust fund provider sought to refute the contention that
such providers support financially unstable brokers to the detriment of
motor carriers and the transportation industry in general. The
commenter believes it has the largest claims database specific to this
industry and said that its claims data do not support those assertions.
The commenter stated that, on the contrary, many BMC-84 surety
companies enter and leave the market every few years because their
realized losses are much higher than initially anticipated. The
commenter said many surety companies will not issue BMC-84s due to the
inherent high-risk factors.
FMCSA response: FMCSA appreciates all of stakeholders' comments
regarding assets readily available. Today's proposal is intended to
balance protection of motor carriers and shippers with cost. FMCSA
believes that its proposal will meet the congressional goal of ensuring
that motor carrier claims are paid in a timely fashion without causing
significant disruption to the broker and freight forwarder industry.
C. Immediate Suspension of Broker and Freight Forwarder Operating
Authority
MAP-21 provides that FMCSA shall immediately suspend the
registration of a broker or freight forwarder if their available
financial security falls below $75,000 (49 U.S.C. 13906(b)(5), (c)(6)).
In the ANPRM the agency discussed, and invited comment on, how it could
immediately suspend broker/freight forwarder operating authority
registration consistent with due process requirements, e.g., by
providing an appropriate opportunity for post-deprivation review.
How can the Agency determine that the available financial security of a
broker or freight forwarder has fallen below $75,000?
In the ANPRM, FMCSA said that it first needed to determine when the
available financial security of a broker/freight forwarder is below
$75,000. The agency considered effecting immediate registration
suspension in either or both of two situations. First, FMCSA would
suspend when it receives notice from the surety or trust fund provider
that a drawdown/payout on the bond/trust has occurred, such that the
available financial security is less than $75,000. The second situation
would be where: (a) a surety or trust fund provider gives reasonable
notice of a claim to the broker/freight forwarder, (b) the broker/
freight forwarder does not respond, and (c) the surety/trust fund
provider determines that the claim is valid and provides notice of
these events to FMCSA. . A trade organization supported the agency's
proposed approach to triggering the agency's statutory obligation to
immediately suspend registrations, saying it appeared to be a sensible
proposal. A surety provider agreed that it must be ``explicitly
detailed as to when the security falls below $75,000.''
[[Page 838]]
A trade organization wrote that it supported a recommendation of
Avalon Risk Management that three or more valid claims from different
sources, aggregating more than $25,000, that have remained unresolved
for at least 30-days is one reasonable standard. It wrote that the
agency needs to clarify what constitutes financial failure or
insolvency so that the surety or trust provider will not be at risk if
it invokes the procedures under 49 U.S.C. 13906(b)(6) and (c)(7) to
terminate the security and start the 60-day period for submission of
claims. The commenter noted that this sometimes occurs over the
objections of the broker or freight forwarder.
A surety provider suggested that failure of the broker/forwarder to
respond in any manner to the surety or trust fund provider in 5
business days should be sufficient to permit the surety/trust to
request immediate suspension, publish the notice, and start the 60-day
clock for presentation of claims.
The same commenter added that, if written evidence is provided that
the validity of the claim is reasonably disputed, parties should be
afforded more time. In addition, the commenter believed that failure to
resolve a specified number of undisputed claims representing a
specified percentage of the security after 30 days should be construed
as an impairment of that security and a financial failure, triggering
immediate suspension. The commenter believed that financial failure
outside of bankruptcy should be a trigger for immediate suspension, but
noted that ``financial failure'' is undefined, and the operating
authority holder's actual situation is difficult to determine. While
the commenter recognized that larger operators would have more claims,
it asserted that best practices would keep them within these
parameters.
A surety provider believed that the only scenario where the
financial security amount would drop below $75,000 in the case of a
surety would be if the surety were to issue some sort of refund or if
the surety were to pay a claim, which would reduce the value of the
trust below $75,000; thus, this section should be read in conjunction
with 49 U.S.C. 13906(b)(2)(A), ``Payment of Claims.'' However, the
commenter anticipated problems with any of the scenarios in which the
surety provider pays a claim against a broker as a justification for
immediate suspension. The commenter believed that a broker's failure to
respond to emails and phone calls from the surety is a good indication
that the brokerage is experiencing or has already experienced financial
failure warranting immediate cancellation. Another situation that might
trigger immediate cancellation would be if a broker responds but fails
to provide information to resolve the claim within a reasonable period.
The surety provider wrote that a brokerage experiencing financial
failure typically uses delaying tactics to buy more time. The commenter
recommended that the surety provider be able to request the immediate
suspension of a brokerage, given the totality of the circumstances
involved (i.e. evasive responses, delaying tactics, payments bouncing,
and prior claim history). The commenter also cautioned that ``any
bright line rule that calls for cancellation based upon either the
number or claims received or total dollar amount of claims would be
difficult to apply as there is no `one size fits all' number. Large,
and even small brokerages, will get claims that may or may not be valid
and that may or may not indicate `financial failure or insolvency.' ''
A trade organization provided a draft of a new Sec. 387.307
containing a process that the commenter believed would lead to FMCSA's
suspension of a broker's operating authority when required under the
statute. The commenter recommended that, if by the end of 10 days
following notice of the claim, the broker ignores the notice, does not
dispute the motor carrier's claim, does not pay the claim, or does not
provide the information and documents described in the draft section,
the surety consider the motor carrier's claim valid and payable under
the bond or trust. The surety would then have to notify FMCSA that the
amount of available security is less than required by law, triggering
the 30-day period for cancellation under 49 U.S.C. 13906(b)(4)(A).
Under the commenter's proposal, the presumption of insolvency and
cancellation notice would be lifted if the broker were to file a
completely new bond or trust within 30 days. The commenter believed
that, if a broker owes a motor carrier money and does not pay the motor
carrier, or ignores the surety's notice of the claim, FMCSA could
reasonably consider the broker to be financially insolvent under 49
U.S.C. 13906(b)(6). The only time a 30-day cancellation period should
run while the broker continues to do business is when there have been
no valid claims filed on its bond. The commenter believed such a rule
would prevent brokers from continuing to incur debt to motor carriers
that is not protected by a compliant surety bond or trust.
FMCSA response: After consideration of the comments received on the
ANPRM, FMCSA proposes that the most workable standard for determining
that available financial security has fallen below $75,000 is when an
actual drawdown has taken place. It would then be very clear to both
brokers and freight forwarders that if they don't quickly replenish
their trust funds or surety bonds that their operating authority
registration will be suspended.
What is the appropriate allowable time period for brokers or freight
forwarders to respond to claims?
In the ANPRM, FMCSA sought comment on the appropriate allowable
time period or ``cushion time'' for brokers or freight forwarders to
respond to claims made to guarantors, valid or otherwise. Such a grace
period would give firms adequate time to adjudicate claims and
settlements internally, as well as to factor in costs associated with
contract noncompliance when setting their pricing.
Several individuals who commented on this process believed the
broker should have 30 days to pay the driver or company. One individual
added that the bond company should have 30 days after that to pay the
carrier. Another commenter believed the broker needs at least 60 days
from the time the notice of a violation/claim is issued to respond and
up to 90 days after acknowledgement of receipt to show corrective
action. A third commenter said that carriers must be paid within a day.
Three individuals wrote that brokers should have their licenses revoked
immediately.
A trust provider, responding to FMCSA's suggested 14-day grace
period for brokerage response to a notice or claim, said a surety
company's determination of cancellation is routinely made much sooner.
The commenter said 5 business days is all that is necessary to
determine if a brokerage is still in operation, can be contacted, and
can respond appropriately to the notice of claim. The commenter
emphasized that any bright line rule would not work, and instead the
agency's determination should be based on the totality of circumstances
and the surety's prior experience and knowledge. A trade organization,
however, believed a period of at least 2 weeks is appropriate. While
that commenter appreciated the need to move swiftly, it also recognized
that intermediaries need time to internally investigate claims and that
suspending an intermediary's registration may result
[[Page 839]]
in significant supply chain disruptions. The commenter reported that
the 2-week period would also correspond to the 14-day response period
FMCSA is considering for a proposed definition of financial failure
that would trigger the responsibility of a guarantor to take action
against the intermediary's bond or trust fund.
A surety provider believed that, if after 3 to 5 days the principal
has not made payment or explained its reason for non-payment, the
surety can start to presume the principal may be experiencing financial
failure or insolvency. The commenter wrote that a broker or freight
forwarder should be able to determine, almost immediately, why it has
not paid the carrier within the period to which both carrier and broker
had contractually agreed. Because not every bond termination would be
due to claims, it commented that FMCSA must allow for the surety or
trust provider to be able to identify when a termination should involve
immediate suspension of authority.
A surety provider believed that revocation of authority immediately
or within 48 hours of cancellation of bond/trust would help prevent
carriers from being left with little or nothing to show for their
services. The commenter wrote that there are brokers who have entered
the industry who post loads with no intent on paying the carrier. It
explained that the surety or trust company will not receive a claim
against these brokers for at least 30 days since, under the current
regulations, brokers have an additional 30 days to broker loads before
their authority is revoked by FMCSA (33 actual days). The commenter
said this is one of the reasons why so many carriers receive only
partial settlement of their original claim amount.
A surety provider commented that protection of motor carriers
requires that a broker or freight forwarder who fails to pay should be
immediately suspended or otherwise sanctioned to induce the payment.
The commenter again suggested that the failure of the broker/forwarder
to respond in any manner to the surety/trust within 5 business days
should be sufficient to permit the surety/trust to request immediate
suspension, publish the notice, and start the clock on the time to
present claims. If written evidence is provided that the validity of
the claim is reasonably disputed, the parties should be afforded time
to resolve their issues, including reducing the claim to judgment if
necessary. The commenter asserted, however, that in any case when a
surety or trust provider submits a request for immediate termination,
the termination should be effective within 2 business days from the
request. A surety provider noted that it is difficult to establish a
hard rule regarding a grace period, as each situation is unique.
FMCSA response: FMCSA is not proposing a specific time for brokers
or freight forwarders to respond to claims made to surety providers or
trustees in this NPRM. Parties will be able to freely negotiate
appropriate time periods under their private contracts.
How can the Agency suspend broker or freight forwarder operating
authority?
Suspending broker or freight forwarder operating authority whenever
a claim is filed against a broker or freight forwarder or its bond or
trust would raise due process concerns, as the agency would be
prohibiting the broker or freight forwarder from lawfully operating,
without affording the company a chance to respond. In the ANPRM, the
agency wrote it would consider how it could immediately suspend broker
or freight operating authority registration in a manner consistent with
constitutional due process requirements, e.g., by providing an
appropriate opportunity for post-deprivation review.
A surety provider commented that due process requires that the
broker or forwarder be given an opportunity to address the claim and
present any defenses that may exist.
A trade organization raised a Fourteenth Amendment ``Equal
Protection of the Law'' claim and asserted that the government cannot
lawfully suspend the authority of brokers and forwarders upon mere
notice of cancellation and not apply the same procedure to situations
in which motor carriers' insurance companies have filed similar notices
of cancellation. The commenter wrote that the procedure currently in
place was enacted to ensure due process and a reasonable time to
respond.
A trade organization commented that a licensed property broker or
freight forwarder should not have its authority suspended immediately
based on claims received, because invalid claims are often made.
Ensuring fair due process is an essential part of this rulemaking for
the commenter and its members. Furthermore, suspending authority
without due process would cause a flood of authority reinstatements and
re-processing for all involved, increasing the burden on the agency.
Specifically in response to this issue, a surety provider described
the existing process when a surety receives claims against a bond: (1)
the surety contacts the bond principal to advise it of the claim,
determine whether any defenses exist, and/or whether the claim will be
promptly handled by the bond principal; (2) the surety may become aware
that the business is failing and may determine the bond should be
terminated; (3) when this happens, the surety gives notice of
termination to FMCSA, which takes effect 30 days later. As the
reporting window for claims begins, the surety may receive more claims
from other parties for transportation before and after the date on
which notice of the bond termination was given to FMCSA.
A trade organization proposed detailed regulatory language that it
believed would set up a clear process that would lead to FMCSA's
suspension of a broker's operating authority when required under the
statute. This draft language proposed by the trade organization sets
out the information a motor carrier would be required to submit to a
surety or trustee to make a claim and establishes that the motor
carrier may not be required to provide any other information. The
commenter's proposed text requires that, if the motor carrier does not
submit a claim that meets the requirements, the surety may immediately
provide notice of the claim's deficiencies and give the motor carrier
an opportunity to refile the claim. If the motor carrier provides a
copy of a judgment in its favor against the broker, the surety will
consider the motor carrier's claim against the bond valid. The
commenter also proposed detailed procedures the surety would use to
give brokers notice of a claim against the bond, provide the broker the
opportunity to pay the motor carrier and provide proof to the surety.
It also proposed a procedure for a broker's response to a claim--which
the broker would have to provide within 10 business days of receiving
notice of a claim against its surety bond from a surety or trustee.
However, the commenter noted that it did not intend for this proposed
process to be a substitute for the resolution of legitimate disputed
claims between brokers and motor carriers. Instead, the proposal was
intended to apply when brokers ignore a surety's notice of motor
carrier claims or when brokers do not bother to dispute such claims
with the minimal, timely response required under the rules. This
distinction was intended to ensure that sureties and FMCSA do not have
the duty to resolve legitimate disputes between a broker and a motor
carrier. Sureties only need to identify that there is a legitimate
dispute, as described above. The same commenter also encouraged FMCSA
to adopt a process that would allow
[[Page 840]]
members of the public to petition the agency to revoke the registration
of brokers that make a false statement at any point in the claims
process.
A surety provider commented that, if it was forced to cancel a
policy upon notice of a claim, freight brokers would be regularly shut
down even for illegitimate claims. While forcing an immediate
suspension of all freight brokers with claim activity would be better
for its own bottom line, the commenter believed ``it simply is not fair
to freight brokers.'' The commenter therefore recommended that surety
bond and trust providers not be forced to cancel until a claim has been
paid, which would be consistent with MAP-21 section 32918. Instead,
cancellation prior to claims being paid out should be left to the
discretion of the surety, and this approach is consistent with that
taken by many other government agencies. The commenter added that the
insurance carriers that back its bonds are highly motivated to ensure
that they cancel bonds with legitimate claims as soon as possible, as
each legitimate claim greatly impacts the profitability of the surety
industry.
FMCSA response: Based on today's proposal, FMCSA would suspend the
operating authority registration of a broker or freight forwarder only
in the event of a drawdown on the bond or trust. Any other formulation
is administratively unworkable. Moreover, as proposed later in this
NPRM, FMCSA would give brokers or freight forwarders seven business
days to contest any immediate suspension action before it takes effect,
in order to meet constitutional due process concerns.
Comments on Actual Incidence of Non-Payment by Brokers or Freight
Forwarders
In the ANPRM, FMCSA asked for documented incidents of actual
nonpayment that occurred after a financially troubled broker or freight
forwarder was not immediately suspended. A trade organization commented
that FMCSA must immediately suspend the registration of a broker before
the broker's nonpayment to motor carriers results in claims on its bond
or trust in an aggregate amount of more than $75,000. Further, it
commented that FMCSA must reject the fiction that considers a bond to
be in effect until a claim is actually paid on the bond, which means
the broker can continue to conduct business even if there is
effectively no longer any financial security in place. The commenter
wrote that, under this practice sureties now wait to confirm that they
have collected all the claims triggered by the broker before making any
payout. By then, the pro-rata payouts from the bond to motor carrier
claimants amount to cents on the dollar. The trade organization
appended to its comment an excerpt of a list of motor carrier claims
against broker bonds that it had helped the motor carriers lodge with
sureties and trustees. The commenter believed this list shows that the
failure of the bond or trust security to cover all of a broker's debts
to its motor carriers is a common problem. The commenter also provided
as an example a September 2018 court case in which a BMC-84 surety
provider (Merchants Bonding Co.) filed an amended complaint in
interpleader asking a U.S. District Court to determine how to pay the
$75,000 bond to a total of 646 claimants.
A representative of a motor carrier reported that it had not been
paid for a few loads by freight brokers and could collect only about 10
percent of what was due because there were too many claims. Because the
freight brokers are permitted to work for 45 days after such unpaid
claims are reported, they can increase the amount they owe; however,
the motor carrier believed that those brokers never intended to pay
anything.
A surety provider submitted an example of a brokerage that
continued to book 27 loads with a total value of more than $35,000
after cancellation had been requested. This provider commented that
terminating the bond immediately does not stop claims from
accumulating, but it does help mitigate damages. Further, it wrote that
moving loads so close to effective cancellation decreases the motor
carriers' chances of filing a claim within 60 days of effective
cancellation (as they are normally contacting the surety 60 to 90 days
after delivery and therefore the 60-day window for accepting
applications will have passed) and increases the chances that the
payout will be pro rata. A second surety provider submitted the example
of a logistics company that had accumulated $945,739 in unpaid motor
carrier claims after paying out the full corpus of a $75,000 BMC-85
Trust.
A surety provider wrote that many bond principals, terminated
recently due to claims, also had claims for shipments that began after
the termination notice was given, but still within the time when the
bond principal's FMCSA operating authority was valid. For moves that
occurred after the termination notice was given, it reported that
nearly all occurred within the first 14 calendar days. This commenter
believed that when a bond termination is due to claims, an immediate
suspension of FMCSA operating authority would prevent post-notice
shipments from becoming the subject of further claims, and would
prevent carriers on those shipments from encountering delays in getting
paid under the bond or getting only partial payment. The commenter
added that the pre-notice claims would benefit from a higher pro-rata
payment.
FMCSA response: FMCSA appreciates the empirical data regarding the
non-payment of claims. FMCSA renews its call in this NPRM for data that
shows the amount of nonpayment that could be avoided through FMCSA's
implementation of the immediate suspension provision. FMCSA believes
that most brokers do not have unpaid legitimate claims. A small but
significant population of brokers do fail to pay legitimate claims,
however, are non-responsive to motor carriers and BMC-84/85 providers
and continue accumulating claims until their FMCSA operating authority
registration is revoked. Ultimately, $75,000 can be insufficient to pay
the multiple unpaid claims, and motor carriers are often paid a
fraction of what they are owed through interpleader proceedings. FMCSA
will attempt through this rulemaking, consistent with MAP-21, to
suspend the operating authority registration of these delinquent
brokers before the unpaid claims exceed the value of the brokers'
financial responsibility instruments.
Other Comments Related to Immediate Suspension
A trade organization commented that an unintended consequence of a
larger bond is that $75,000 actually gives truly fraudulent brokers
more room to steal than the original $10,000 bond. While it believed
the government should enforce the laws, it concluded that ``[t]he
principles of laissez-faire should apply here.''
Another trade organization believed that many carriers know there
is little hope to recover from a bond and do not even bother filing
their claims against the bond. Those who do file a claim must have the
ability to file a complaint in interpleader or hire a lawyer.
A surety provider commented that the surety/trustee is being placed
in the role of arbiter with further restrictions on how to execute the
role. If a broker or forwarder disputes a claim, this commenter wrote,
the surety or trustee has its hands tied and the claimant must be told
it needs to obtain a judgment to pursue the claim. Questionable
operators can continue to stack up liabilities by asserting that the
claim is being taken care of but then fail to resolve the claim or
provide any evidence of its invalidity. The
[[Page 841]]
commenter asserted that this part of the regulation needs to be
changed.
FMCSA response: FMCSA appreciates these comments and believes that
implementation of the proposed immediate suspension provision would
reduce the time a broker is permitted to operate and accumulate claims
and the number of interpleader actions that are filed.
D. Surety or Trust Responsibilities in Cases of Broker or Freight
Forwarder Financial Failure or Insolvency
The ANPRM sought comments on the how financial failure or
insolvency and publicly advertise should be defined in accordance with
49 U.S.C. 13906(b)(6) and (c)(7).
How should financial failure or insolvency be defined?
In the ANPRM, the agency suggested criteria for a definition of
financial failure or insolvency (83 FR 48779, 48784). The agency wrote
it is considering a definition of financial failure or insolvency that
would apply at a pre-bankruptcy stage. FMCSA suggested criteria for
financial failure or insolvency that included situations where the
broker or freight forwarder has claims against its bond/trust, is not
responding to notifications from the trust or surety provider within 14
calendar days, and is not in bankruptcy proceedings.
None of the commenters on this issue believed that establishing an
absolute definition of financial failure or insolvency would be a good
idea. A trade organization suggested that FMCSA should define financial
failure/insolvency simply as receipt of notice by the broker or
forwarder of its inability to pay its bond/trust fund premium. The
commenter also wrote that FMCSA could require brokers and forwarders to
provide notice of the filing of a bankruptcy petition to their surety
or trust administrator. However, this trade organization believed that
anything beyond this would require the surety provider to supervise the
operations of the broker or freight forwarder, which transcends the
normal role of a fiduciary. A second trade organization maintained that
the filing of bankruptcy by the bonded principal is the clearest, most
objective test for financial failure or insolvency. The commenter
stated that financial failure or insolvency should not be premised on a
certain number of claims made in a certain period or an aggregate value
of claims unresolved within a certain timeframe. The commenter wrote
that defining financial failure or insolvency in a pre-bankruptcy
context may not be practical.
A surety provider defined financial failure or insolvency as the
inability to pay debts as they become due and referenced 11 U.S.C. 101.
However, this commenter maintained that the scenario should be
interpreted very broadly, allowing the surety provider to use its
discretion. It also opposed any ``bright line rule'' based on the
number of claims received, the total dollar amount of claims, or a
certain number of claims in a certain time period, as there is no ``one
size fits all'' number. Another surety provider agreed that
``insolvency is routinely defined as an inability to pay one's debt, so
a broker/freight forwarder that is not paying its bills when they come
due meets this insolvency definition.'' However, the commenter believed
it may not be possible to define financial failure or insolvency, and
recommended FMCSA consider reasonable interpretations by the surety and
trust industry of that standard.
FMCSA response: FMCSA agrees with the commenter who believes that
defining financial failure or insolvency as a bankruptcy filing (or
State insolvency filing) is the most appropriate and practical. FMCSA
outlines its rationale for such a standard later in this preamble.
How should publicly advertise be defined?
In the event of financial failure or insolvency, surety providers
must publicly advertise for claims for 60 days beginning on the date
FMCSA publishes the surety's notice to cancel the surety bond/trust (49
U.S.C. 13906(b)(6)(B), (c)(7)(B)). In the ANPRM, FMCSA wrote that it is
considering a definition of publicly advertise that would deem notice
to FMCSA of the financial failure or insolvency of the broker or
freight forwarder as publicly advertising for claims under MAP-21 (83
FR 48779, 48785). The agency also reported that it is investigating
whether it can flag such cancellation notices with a special code, so
that potential claimants reviewing a broker or freight forwarder's
records on the FMCSA website would know that the 60-day period to make
a claim has begun.
Most of those who commented on this issue believed that the
requirement to publicly advertise should be satisfied by the surety
provider giving notice to FMCSA, which FMCSA would then make publicly
available. However, one trade organization recommended that FMCSA
publish a notice in the Federal Register. A second trade organization
commented that if insolvency is based on bond claims FMCSA could ask
the surety to notify the agency of all claims made on the bond, which
would allow the agency to determine if financial failure or insolvency
triggered by outstanding claims has occurred. If financial failure or
insolvency was based on the principal's bankruptcy, the agency could
require notice of the bankruptcy filing. This commenter believed that
FMCSA serving as a centralized, public location that brokers or freight
forwarders could monitor for these notices would be far more efficient
than each surety posting notice on its respective website.
A trade organization believed that if FMCSA provided public notice
of cancellation under 49 U.S.C. 13906(b)(4)(B), motor carriers could
look up a broker's registration status before taking a load from that
broker. Such FMCSA notice would also provide the dates that the 60-day
claims period commenced and the due date for claims to be filed with
the surety on the bond. The commenter recommended that FMCSA change its
Licensing and Insurance page to provide a link to the surety's web page
indicating how many unresolved claims have been submitted against the
bond, similar to FMCSA's publication of motor carrier inspection and
accident data on the Motor Carrier Management Information System.
In addition to notice on the FMCSA website, several surety
providers suggested posting on the surety provider's website or FMCSA
providing a hyperlink to the provider's website. A surety provider
believed that flagging the posting with a code identifying the reason
for cancellation (claim activity vs. non-compliance) would benefit both
motor carriers and other surety providers, as many of these ``bad''
brokerages jump from surety to surety, leaving claims behind. This
commenter also believed that, as approved filers with login
credentials, surety providers should be provided access to all
information and documentation that has been filed with FMCSA (e.g.,
Application for Motor Property Carrier and Broker Authority filing,
Unified Registration System information) by the provider for which they
have completed the BMC-84 or BMC-85 filing. A surety provider believed
FMCSA should host the list of entities in financial failure or
insolvency across all surety companies and trust providers in one
location to make it easier for the public to become aware of these
notices. A third surety provider wrote that the requirement to publicly
advertise would be satisfied by maintaining the information on the
surety/trust website, augmented by listing the payees upon closure of
the
[[Page 842]]
case. One surety provider noted that these public advertisements are
only of value if they are easily found and recommended a consolidated
location.
A surety provider wrote that upon cancellation of a BMC-84 surety
bond or a BMC-85 trust, the issuer of the bond or trust should be
required to post the cancellation and advertise for claim submission on
its website for no less than 60 days. The commenter asked FMCSA to
allow 30 days for the surety or trust provider to investigate the claim
and an additional 30 days to make payment or denial (citing reason) to
claimant: 60 days to advertise, plus an additional 60 days to
investigate and settle claim.
FMCSA response: Consistent with the position of most commenters,
FMCSA will consider the surety or trust's duty to publicly advertise
claims to be met through the provision of notice of financial failure
or insolvency to FMCSA. In this NPRM, FMCSA proposes to post such
notices in the FMCSA Register section of its website to provide a
centralized location for notice of claims periods.
Other Comments Related to Surety or Trust Responsibilities
Sureties or trust fund providers will have to commence action to
cancel broker or freight forwarder surety bonds or trust funds in the
event of broker/freight forwarder financial failure or insolvency (49
U.S.C. 13906(b)(6), (c)(7)). To effectively implement this provision,
commenters provided other insights on surety or trust responsibilities
in these cases.
A trade organization suggested that the requirements for the
qualifications for trustees and trusts be sufficiently effective so
that trustees are compelled to do better underwriting of brokers,
eliminating those from the industry who may be likely to default on
their payments to motor carriers.
A surety provider noted that the authority for pro-rata payments to
claimants who have filed following publication of the need to file
claims but before the cut-off date, should be explicitly set out in the
regulations to protect the surety or trust and eliminate any delay in
making payments to motor carriers.
FMCSA response: FMCSA believes that this NPRM would improve
regulation of trustees and lead to fewer brokers or freight forwarders
defaulting on their payments. Regarding the latter comment, FMCSA does
not believe that a specific provision in the regulations is necessary
because the statute regarding pro-rata payment of claims is self-
implementing.
E. Enforcement Authority
Surety Suspension Procedures Under 49 U.S.C. 13906(b)(7) and (c)(8)
The agency sought input on the development of surety suspension
procedures authorized pursuant to 49 U.S.C. 13906(b)(7) and (c)(8).
FMCSA has authority under MAP-21 to suspend non-compliant surety
providers from providing broker or freight forwarder financial
responsibility for 3 years, seek civil penalties against surety
providers, and sue non-compliant surety providers in Federal court. In
the ANPRM, the agency noted that it expects to establish a procedure
for suspensions where it will issue an order to show cause against a
non-compliant surety provider, weigh any evidence submitted by the
provider, and make a final decision. (83 FR 48785)
A trade organization commented that FMCSA's enforcement authority
is likely to be exercised mainly against sureties providing BMC-85
trusts since Treasury has authority to regulate sureties providing BMC-
84 bonds. It supported the use of the simplified show cause procedure
proposed by FMCSA, adding that the show cause order should be published
to allow interested members of the public to comment. This trade
organization recommended that, in order to ensure funds are available
to pay motor carrier claims without a large expenditure of agency
resources, the agency should require trust providers to issue only
fully funded trusts and allow the market to regulate this by requiring
the trustor to publish a list of valid claims paid on a publicly
accessible website. According to the commenter, this information is
currently required to be submitted to FMCSA, and the commenter believed
there is no reason it should not also be made publicly available, so
that motor carriers and others can see for themselves whether a trust
provider is paying valid claims. The commenter wrote that the agency
must make the distinction between ``paid claims'' and ``filed claims.''
Only valid claims paid should be required to be filed with the agency.
This same trade organization commented that, in order to show that a
trustee is holding $75,000 in cash or a cash equivalent for each of the
brokers for whom it has filed a BMC-85, FMCSA should require the
trustees to file audited financial statements with the agency showing
the number of brokers for whom it has filed BMC-85 forms with the
FMCSA, and the value and type of assets it is holding in trust to
support them. The commenter said that FMCSA should make these audited
financials publicly available so that the beneficiaries of these trusts
can determine whether the trusts are fully funded with liquid assets
``readily available to pay claims.'' If they are not, then the
Government should take enforcement action by cancelling the trust's
registration number and terminating its ability to file BMC-85s.
A second trade organization laid out the surety's duties and
procedures in detail in a draft proposed rule. The commenter believed
these rules would define the limits of the surety's liability and
remove any concerns that it must wait to collect all potential claims
before paying claims on the bond. This trade organization encouraged
FMCSA to adopt a process that would allow a member of the public to
petition the agency to revoke the right of a surety or trustee to file
bonds and trusts with the agency, if that surety or trustee has failed
to follow the procedures in its draft Sec. 387.307, Property broker
surety bond or trust fund.
A surety provider wrote that a BMC-84 surety provider or BMC-85
trust fund provider becomes insolvent when it is unable to pay claims
or redemptions upon demand. The commenter believed that when FMCSA can
verify this, the agency should issue a notice to show cause and demand
the surety provide proof of financial stability. If the surety is
unable to adequately respond, FMCSA should issue a notice to the
holders of the respective BMC-84s or BMC-85s that their ``proof of
minimum financial responsibility'' will be suspended in 30 days if they
do not obtain alternative surety filing.
A surety provider believed that FMCSA should suspend or revoke a
surety or trust provider's authority to file BMC-84s or BMC-85s only if
a written complaint with supporting evidence was filed with FMCSA,
investigated, and ruled on by FMCSA as to suspension or revocation. The
commenter stated that FMCSA must clearly define compliance rules before
suspension or revocation is adopted practice.
A surety provider wrote that FMCSA must be certain any regulations
or procedures it adopts do not conflict with Treasury's regulations in
31 CFR 223.17(b), regarding an agency's decision to refuse to accept a
bond from a surety listed on OMB Circular 570. The commenter noted
that, while FMCSA may determine that the Treasury procedure is enough,
U.S. Customs and Border Protection has regulations outlining how that
agency determines when to refuse to accept a surety's bond (19 CFR
113.38), without creating a referral to Treasury for
[[Page 843]]
removal from OMB Circular 570. This surety provider commented that the
suspension of the eligibility to provide surety bonds or trust
functions, on behalf of FMCSA financial responsibility instruments,
must not be the result of any arbitrary or capricious decision making.
A surety provider believed if any trust provider is found not to be
holding the funds required in support of the aggregated trusts they
have underwritten or if a surety loses its authority granted by
Treasury, that provider should immediately lose its authority to
provide bonds or trusts. However, since suspension of the surety or
trust will impact all of the principals for bonds issued by that surety
or trust, the matter must be taken seriously and not be solely
triggered by a complaint. The commenter believed the agency should
provide the surety or trust with a notice to show cause why its
authority should not be suspended, together with a list of particulars,
and should provide the surety or trust with an opportunity for a
hearing. The commenter said that if the agency has concerns, industry
would expect it to initiate a dialogue so that the surety or trust
might address those concerns before it reaches a show cause condition.
A surety provider recommended that FMCSA provide bond and trust
providers the ability to post information related to surety suspension
procedures on the FMCSA website, or to have the information sent to the
FMCSA for posting.
FMCSA response: After consideration of the comments, FMCSA proposes
a surety or trust suspension procedure as described later in this
preamble and consistent with what it described in the ANPRM.
Other Comments Related to FMCSA's Enforcement Authority
Commenters provided other views related to FMCSA's enforcement
authority. A trust fund provider noted that ``the lone imploding BMC-85
provider, Oasis Capital, Inc., which exited the marketplace owing
claimants and redemptions, was a singular event.'' This commenter
maintained that there is no other evidence of BMC-85 providers not
paying claims or not providing redemptions to their customers. By
contrast, another commenter asserted that there is evidence, revealed
by a Google search, that BMC-85 providers have failed to pay legitimate
claims. It also reported no claim issues can be found doing similar
online searches for BMC-84 providers.
Another trade organization urged the agency to require all BMC-85
trust providers to submit timely notice of the financial failure of any
of their clients and to make information regarding claims paid publicly
available. The commenter wrote that underfunded or insolvent trust fund
providers ``tarnish the brokerage industry and disadvantage those
operating legally, enable irresponsible brokers to continue operating
without adequate security, and cheat motor carriers, thereby lessening
the safety of the transportation industry.'' The commenter reported
that when owner-operators do not get paid, they may not be able to
invest adequately in maintenance and safety improvements. The commenter
wrote that FMCSA must enforce the law and give its highest priority to
ensuring that trust providers are fully funded.
While it understood that the agency focus is on safety, a trade
organization believed that the economic well-being of small business
motor carriers has a huge impact on safety because the loss of one
payment can cause a motor carrier to defer maintenance and run harder
until it makes up the shortfall. The commenter provided suggested
regulatory text that it believed would keep persons with little
financial backing from entering the broker industry, reducing the need
for FMCSA enforcement action.
FMCSA response: After consideration of the comments, FMCSA proposes
a surety or trust suspension procedure as described later in this
preamble and consistent with what it described in the ANPRM.
F. Entities Eligible To Provide BMC-85 Trust Fund Filings; should BMC-
85 providers be licensed as trust providers?
Under MAP-21, FMCSA has broad authority to determine who is
eligible to provide trust fund services on behalf of brokers or freight
forwarders. A broker must file a surety bond or trust fund from a
provider ``determined by the Secretary to be adequate to ensure
financial responsibility'' (49 U.S.C. 13906(b)(1)(A)). Section
13906(c)(1)(A) contains similar language for freight forwarders. Under
current regulations, a financial institution may file trust funds
(Sec. 387.307). In addition to other types of entities, loan or
finance companies are considered financial institutions pursuant to
Sec. 387.307(c)(7). In the ANPRM, the agency asked whether FMCSA
should require BMC-85 trust fund providers to be licensed as trust
providers. It also asked how Sec. 387.307(c)(7) (loan or finance
company) could be amended to ensure adequate monitoring of BMC-85
providers' ability to pay claims.
A number of commenters believed that providers of BMC-85 trust
funds should be licensed as trust providers.
A surety provider believed that, while requiring BMC-85 trust
providers to become licensed trust providers would add further
regulatory oversight, the government agencies that provide the trustee
licenses would not enforce or know the proper amount of assets that the
trustees should have in trust. The commenter wrote that FMCSA needs to
provide further oversight of the BMC-85 trusts. The commenter reported
that when the BMC-85 trust providers were directly asked at the May
2016 roundtable if they were collecting $75,000 to be held in trust,
none claimed they were. Instead, they collect a small percentage annual
fee, akin to unlicensed surety bonds, with none of the regulatory
oversight or safeguards. The commenter wrote that a trust license
requirement would not change this, but oversight and regulation from
the FMCSA could.
FMCSA response: After consideration of the comments, FMCSA is not
proposing that BMC-85 trust providers be licensed as trust companies.
Given both the proposed enhanced asset quality requirements and the
requirement that BMC-85 trustees be more robustly monitored by
financial regulators, FMCSA believes it is unnecessary to require that
BMC-85 providers be licensed as trustees given the added cost such a
requirement may impose.
Other Comments Related to Which Entities Should Be Eligible To Provide
Trust Funds
A trade organization endorsed the previously filed comments of the
Association of Independent Property Brokers & Agents and quoted from
them extensively regarding what it believed is a conflict-of-interest
issue regarding ``the current practice of non-profit entities engaging
in the normally for-profit business of selling or the brokering of
financial security.'' The commenter believed that instead of working to
fulfill important MAP-21 mandates, industry had been asked to ``engage
in furtherance of what we believe is nothing more than a trust fund
supplier `witch hunt' asked for by competing BMC-84 bond issuers and/or
other entities that represent themselves as bona fide, non-profit trade
groups, but are actually for-profit BMC-84 bond peddlers in disguise.''
The commenter recommended that FMCSA restrict industry trade groups
from selling financial security instruments.
[[Page 844]]
A surety provider suggested FMCSA consider promulgating regulations
establishing financial criteria that FMCSA believes BMC-85 trust funds
should meet. FMCSA could then require annual reports by independent
accountants from every BMC-85 trust company that wants to obtain filer
authority, verifying that these criteria had been met. If the company
did not provide this annual report, its authority would be revoked. The
BMC-85 trust company would need to have assets readily available that
exceed the liability for trust funds on deposit. The commenter believed
a process like this would be relatively easy for FMCSA to monitor.
A trade organization demanded a change to the licensing process
because of the lack of a qualified, independent monitoring source and
false reliance on a State's initial issuance/reissuance of its business
license. The commenter believed that loan or finance companies should
not be treated as financial institutions, because of concerns that
States will not monitor BMC-85 providers' ability to pay claims from a
trust or, further, monitor such companies for enforcement purposes. The
commenter also believed that the National Insurance Producers Registry
license is only an industry-sponsored listing service of insurance
agents and brokers.
FMCSA response: FMCSA does not believe that there is a need to
restrict industry trade groups from selling financial instruments.
FMCSA's authority is limited to ensuring that BMC-85 trust fund
providers are adequately regulated and suitable for administering trust
funds. Whether such providers are industry associations is not relevant
to that determination.
In regard to the comment suggesting that trustees be required to
have annual reports from independent accountants to measure their
compliance with FMCSA regulations, FMCSA believes that such a
requirement would impose cost upon trustees that is unnecessary. FMCSA
believes that the proposed regulatory structure, where trusts will need
to contain high quality financial instruments that are available to
meet $75,000 in claims, along with the enhancement of the regulatory
requirements for being a BMC-85 trustee, will make such an annual
reporting requirement unnecessary.
Finally, FMCSA agrees with commenter's suggestion that being a loan
or finance company is not sufficient to serve as a BMC-85 trustee.
Through its outreach to financial regulators and their representatives,
FMCSA has received robust feedback that loan or finance companies are
not adequately regulated and hence inappropriate for serving as
stewards of money held in trust for motor carriers and shippers.
G. Revisions to Forms BMC-84 and BMC-85
The agency anticipated the need for revisions to the BMC-84 and
BMC-85 forms if a rulemaking was proposed. In the ANPRM, FMCSA
requested comments to identify suggested changes to the forms.
After review of the BMC-84, a trade organization found it to be
well drafted. The commenter's only recommendation was that the form
require the surety underwriting the bond to be a corporation appearing
on Treasury's list of approved sureties and certified, pursuant to 31
U.S.C. 9304 through 9308, to provide bonds to the Federal Government.
A surety provider suggested that the best approach to revising the
forms would be incorporating regulatory language by reference, rather
than repeating language found in the FMCSA regulations.
Two surety providers believed there is no need to modify the forms
except to conform to changes from rulemaking.
A trade organization encouraged the agency, if it does change these
forms or adopt an electronic version for filing, to revise them to
state that ``no provision on the form or in a contract or agreement
between a broker and a surety or trustee, or a contract or agreement
between a broker and motor carrier, can conflict with or exempt any
party from their rights or duties under the new rules. Nor can any such
contract bind a person to waive their rights or duties under the new
rules.'' The commenter also believed the forms should state that the
contract includes by reference all applicable provisions of 49 U.S.C.
13906 and the regulations themselves. The commenter also noted that
electronic filing of some fields from the physical documents has caused
confusion as to the contents of the form. There are provisions on the
BMC-84 setting legal responsibilities and liabilities that are not
provided by the current statute or regulations.
A surety provider believed that removing the 30-day cancellation
clause, allowing a trust or bond company to cancel on demand, will
reduce the number of claims and lower premiums.
FMCSA response: FMCSA appreciates the comments submitted by
stakeholders. FMCSA may propose revisions to the BMC-84 and BMC-85
forms to align with any changes made to the regulations as a result of
this rulemaking. While any revised forms will be made available for
comment in a future notice, FMCSA also welcomes comments in response to
the NPRM on items to consider for inclusion or revision.
H. Should HHG brokers and freight forwarders be regulated differently?
FMCSA asked whether HHG brokers and freight forwarders should be
regulated differently than general property brokers and freight
forwarders in a rulemaking on broker/freight forwarder financial
responsibility. Two surety providers believed that HHG brokers should
be regulated differently. One commenter noted that the movement of HHG
deals directly with the public. The second commenter also noted that
HHG shippers are consumers who know very little about the
transportation industry. This commenter wrote that in its experience
this segment of the industry often violates existing regulations
regarding estimates and carriers holding loads hostage. It suggested
that enforcement of the existing regulations would reduce those
problems.
A surety provider wrote that, from an underwriting standpoint, it
is unlikely that the surety industry will view HHG differently. The
surety market underwriters already have the ability to segregate
policies based on their operations and have chosen not to do so.
A trade organization representing the moving industry believed that
any additional fraud protections imposed by FMCSA should apply only to
online HHG brokers. A second trade organization representing the moving
industry did not believe that additional fraud protections pertaining
to HHG brokers were warranted.
FMCSA response: FMCSA has decided not to propose regulations
dealing specifically with HHG brokerage or freight forwarding at this
time. FMCSA believes that it is most useful to continue to address
moving fraud through other means. Moreover, there is no requirement in
49 U.S.C. 13906 to issue HHG-specific rules.
I. Market's Ability To Address Broker/Freight Forwarder Noncompliance
FMCSA sought comment on whether the market is able to address
broker/freight forwarder noncompliance. For example, if a broker or
freight forwarder has a history of noncompliance with contracts,
wouldn't surety or trust firms be less likely to back them, or to
charge a higher premium or trust fund management fee? Is there a market
[[Page 845]]
failure that is preventing these transactions from taking place
efficiently?
Three surety providers agreed that sureties would decline to
provide BMC-84s or BMC-85s to any broker or freight forwarder with a
known history of noncompliance with a BMC-84 or BMC-85, except under
special circumstances. These commenters reported that the problem is
with reincarnated brokers and freight forwarders that slip through the
process. One of these commenters wrote that sureties collect a variety
of personal identification information as part of the underwriting
process to ferret out reincarnated entities, but this does not always
prevent these entities from finding another surety, because such
information cannot be disclosed unless the surety is required to
provide it to the agency. Another of these surety providers believed
that a consolidated public posting of the MC number, company name, and
name of the owner(s) of noncompliant brokers and freight forwarders
would help combat reincarnated companies.
A surety provider noted that the whole industry should vet the
broker or freight forwarder using FMCSA's Licensing and Insurance
website, before entering any monetary relationship.
FMCSA response: FMCSA appreciates the information provided through
the ANPRM and has considered it in forming our proposed rule. As
explained elsewhere in this document, FMCSA has attempted to strike an
appropriate balance in how additional regulations may positively or
negatively impact those affected by the proposed changes. FMCSA
encourages stakeholders to review the proposal and provide comments and
particularly data, where possible, to support their positions.
J. Comments on Other Aspects of MAP-21 Section 32918
FMCSA requested comments on any other aspects of implementing MAP-
21 section 32918 that may be necessary, including how these areas could
be implemented in a way that would not divert scarce safety oversight
resources.
One trade organization offered detailed proposed regulatory text.
It suggested that FMCSA's primary role in an NPRM would be to promptly
publish on its Licensing and Insurance website: (1) information
provided by sureties about when a broker obtains a bond or trust that
complies with the rules; (2) information regarding the status of the
broker's registration; and (3) the website link provided by the surety
with which the public can obtain information about the current bond. By
making public timely information about pending bond claims and the
status of a broker's registration, the commenter wrote that the motor
carrier can choose whether to do business with a broker or not.
A surety provider indicated that a license as a premium financing
company, available in all 50 States, with oversight by each State's
department of insurance or banking department, would relieve FMCSA of
the need for an annual review, leaving its limited resources available
for safety oversight. The commenter included a table describing the
licensing requirements for each State.
A surety provider believed that limiting the acceptable financial
instruments to BMC-84 surety bonds is the best way to ensure that FMCSA
does not divert its resources because the BMC-84 bond is the only
product that relies strictly on other government agencies for solvency
and claims handling. The commenter maintained that BMC-84 surety bonds
are less expensive than BMC-85 trusts. The same commenter wrote that
while there are thousands of bond requirements similar to the $75,000
freight broker bond at the local, State, and Federal level, the
Government agencies issuing the requirements rely on other Government
agencies to regulate the companies backing the risk, which allows them
to focus on their regulatory duties. For surety bonds (BMC-84), third
party trusts (BMC-85), ILOCs from FDIC-insured banks, and cash, the
commenter provided two tables describing which Government agencies
regulate each product and what percentage of obligees accept each
product. The commenter noted that FMCSA is the only Government agency
that allows third-party trust companies to hold the ILOCs or cash on
behalf of the agency, greatly adding to FMCSA's oversight
responsibilities.
FMCSA response: FMCSA appreciates the insight provided by the
commenters and the details on varying requirements across the States.
FMCSA reviewed and considered this information in the development of
this NPRM.
Small Business Impacts
FMCSA requested comment on the small business impacts of its
suggested courses of action in the ANPRM. An individual commenter
believed this to be the single most crucial question the agency asked.
He reported that small business truckers must be fully compensated in
order to operate safely; if they are not justly compensated for their
efforts, they have been failed by the system which is in place to
protect them.
A trust fund provider noted that thousands of freight brokers are
small business owners; any disruption to their bond placement or in
their potential authority status may result in lost revenues. The
commenter also wrote that many BMC-85 providers also qualify as small
businesses that could be put out of business if FMCSA adopts a cash-
only standard for BMC-85 trust funds.
A surety provider wrote that, if BMC-85s continue to be offered as
an option, FMCSA must communicate where to report claim issues and must
handle complaints in a timely fashion or small freight carriers will
continue to be forced to close. The commenter added that only FMCSA can
positively impact small freight carriers that have been harmed by the
lack of BMC-85 trust regulation.
FMCSA response: FMCSA understands the differing implications of
regulations, and the absence of regulations, on the affected entities
and has considered the impacts both from broker nonpayment on small
motor carriers and from more stringent requirements on small brokers
and freight forwarders in the development of this NRPM. The impact to
surety bond and trust fund providers was also considered in the
development of this NPRM.
K. Miscellaneous Comments on the ANPRM
Some commenters raised issues or offered explanations that were
related to broker/freight forwarder financial responsibility but
outside the specific issues that FMCSA raised in the ANPRM. A trade
organization proposed regulatory language to ensure that a broker
operates and incurs debt to motor carriers only when it has the amount
of security required by statute. This commenter asked for industry
input on the reasons for a legitimate dispute between a broker and
carrier over payment of a load so they could be incorporated into the
regulations. Other than claiming that it did not contract with the
broker, the commenter believed that the only legitimate dispute would
be one where the shipper or receiver of the load in question had
memorialized a claim in a document given to the broker stating with
particularity that the motor carrier did not perform the transportation
as agreed to. The commenter noted that, when brokers go out of business
with claims exceeding the amount of the bond, those claims are rarely
the subject of a dispute between the broker and the carrier.
[[Page 846]]
This same commenter noted that these financial security rules are
important for the smooth function and safety of the motor carrier
industry. If the rulemaking produces effective steps for the resolution
of motor carrier claims against a bond or trust, this trade
organization believed that ``disputes between motor carriers and
sureties will be reduced, there will be less need for litigation, less
need for FMCSA intervention, and the economic health of the broker/
motor carrier component of the transportation industry will be
stronger.''
In response to the agency's assertion that FMCSA had heard little
from the BMC[hyphen]85 industry, a trust fund provider complained that
FMCSA had failed to consider his comment properly. In his June 16, 2016
post-round table comments, this surety provider wrote that his company
``reiterates and incorporates the entirety of PFA's post-event
`comments regarding the FMCSA roundtable on May 20, 2016.' '' This same
surety provider believed that FMCSA did not appropriately distinguish
between the legitimate interests of motor carriers and shippers and the
``often questionable benefits'' of BMC-84 surety providers.
A factoring company noted that it endorsed the submissions of
Transport Financial Services. The commenter wrote that attendees at a
transportation factoring software users conference agreed that BMC-85
trust providers are preferable to BMC-84 surety providers with respect
to economically regulated transportation claims processing and better
informed regarding such specialized activity than the licensed
insurance adjusters handling a much wider range of claims. A surety
provider believed a rulemaking alone would not provide the adequate
changes needed to solve the issues posed by BMC-85s.
Commenters believed that FMCSA should do more to screen brokers. An
individual wrote that FMCSA should require more proof of financial
stability from brokers, and the broker or forwarder should prove this
to the shipper too. The commenter recommended creating a reporting
portal that would provide a track record of issues with on time
payments or other issues that FMCSA could investigate and act on.
One individual believed that FMCSA is not doing enough to vet
brokers that fail to pay carriers and then close their doors, change
their business name, and/or file for bankruptcy, leaving the surety to
handle the debt. The commenter wrote that FMCSA needs to collect the
social security number of the brokers, their spouses, and managing
partners and then create a database to monitor and even reject ``fly by
night'' operations. The commenter recommended that FMCSA make it a
criminal act to lie on the property broker application and provided
examples of questions intended to weed out chameleon brokers.
A number of commenters believed that the bond amount should be
higher than $75,000. However, one trade organization commented that the
$75,000 bond is too high and serves as an unreasonable barrier to
entry. It recommended it be lowered by Congress to $25,000. Another
surety provider wrote that raising the financial requirement for
brokers and freight forwarders only increased the amount of money
unscrupulous operators could steal.
FMCSA response: FMCSA appreciates these comments and may address
them if they are renewed in response to this NPRM. The $75,000 minimum
requirement is currently mandated by statute. 49 U.S.C. 13906(b)(3) and
(c)(4).
VII. Discussion of Proposed Rulemaking 4
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\4\ Unless ``freight forwarder'' is specifically referenced in
these proposed regulations, all changes to broker financial
responsibility requirements are applicable to freight forwarder
financial responsibility pursuant to 49 CFR 387.403T(c) and 49 CFR
387.403(c). The agency requests comment on whether the agency should
adopt separate regulatory changes on freight forwarder financial
responsibility that mirror the broker regulations or maintain the
current adoption by reference.
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Assets Readily Available
This NPRM proposes to allow brokers and freight forwarders to meet
MAP-21's assets readily available requirement by maintaining trusts
that have assets that can be liquidated within 7 business days of the
event that triggers a payment from the trust, as certified on a BMC-85,
and that do not contain the following assets:
(1) Interests in real property;
(2) Intercorporate agreements or guarantees;
(3) Internal Letters of Credit;
(4) Certain assets determined by States to be illiquid including
second trust deeds, personal property and vehicles;
(5) Bonds that do not receive the highest rating from a credit
rating agency (a nationally recognized statistical rating organization
registered with the Securities and Exchange Commission); and
(6) Any other asset that the broker cannot certify (on a BMC-85)
will be available in the amount of $75,000 within 7 business days.
After consideration of the 2016 roundtable discussion and
associated comments and the comments in response to the 2018 ANPRM,
FMCSA proposes the list of assets that are not suitable for a BMC-85
trust fund above.
First, the Agency believes that 7 business days is a reasonable
period for an asset to be considered ``readily'' available for
liquidation. That will give the broker or freight forwarder adequate
time to convert the asset to cash (if not cash already) but it will be
available for claimants within a reasonably short period, and indeed
quicker than routine collection of commercial debt in other contexts.
Second, FMCSA carefully developed the list of assets that it will
not consider to be ``assets readily available.'' It addresses each of
these in turn.
FMCSA does not believe interests in real property should be in BMC-
85 trust funds as such interest may be difficult to liquidate within 7
business days. Moreover, the value of real property fluctuates, and
FMCSA is concerned that an interest in real property initially worth
$75,000 will not retain its value at the time of a claim on a bond or
trust.
Second, intercorporate guarantees or agreements are dependent on
the financial health of the guarantor, which makes their availability
in the case of a drawdown uncertain. In addition, FMCSA lacks the
information and resources to monitor the financial health of
guarantors.\5\
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\5\ While the agency does accept corporate guarantees in its
self-insurance program, pursuant to 49 U.S.C. 13906(d), such
guarantors are part of a package of collateral that the agency
requires. Moreover, the agency employs a financial contractor to
assist it in that program. The agency's ability to monitor such
instruments in the context of a program with fewer than 50
participants is very different from its ability to assess
intercorporate agreements or guarantees of thousands of brokers and
freight forwarders.
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Third, FMCSA does not believe internal letters of credit are
appropriate for BMC-85s. In order for FMCSA to accept letters of credit
in BMC-85 trust funds, the Agency needs to be confident that the issuer
of the letter of credit is able to pay a claim in the event of a
drawdown. Internal letters of credit do not appear to provide such
reassurance. FMCSA is aware that a leading trust fund provider uses
internal letters of credit in its trust funds, and the agency welcomes
comments on how it can be assured that such letters of credit will be
available for the payment of claims.
Fourth, in preparing this proposed rule, FMCSA explored whether
States have defined assets readily available. FMCSA learned that at
least two States have considered second trust deeds, personal property,
and vehicles to be
[[Page 847]]
illiquid.\6\ Accordingly, given the need for assets to be ``readily
available,'' the agency cannot accept these illiquid assets, and it
proposes to prohibit these assets from being maintained in trust funds.
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\6\ 10 CCR section 1780 (second trust deeds); Haw. Admin. Rules
section 17-675-2 (personal property and vehicles).
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Fifth, FMCSA has determined that given their higher default risk,
bonds that are not considered the highest rated by a nationally
recognized statistical rating organization (NRSRO),\7\ are too risky to
be considered readily available for the payment of claims. FMCSA
welcomes comment on whether a less restrictive approach may protect
motor carriers and shippers.
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\7\ NRSROs are those organizations registered with the
Securities and Exchange Commission (SEC) pursuant to authority in
the Exchange Act, 15 U.S.C. 78c(b), 78o-7, 78q, 78w, and 78mm, and
SEC regulations in 17 CFR 240.17g-1. A list of the ten currently
registered NRSROs is available on the SEC's website. See https://www.sec.gov/ocr/ocr-current-nrsros.html (retrieved Oct. 18, 2022).
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Finally, to provide maximum flexibility for BMC-85 trust providers
and brokers and freight forwarders, FMCSA will allow all other assets
in trusts, provided the broker or freight forwarder can certify under
penalty of perjury that the asset will be convertible to cash within 7
business days of the event triggering its liquidation. This rule also
proposes a 3-year compliance date to give time for brokers or freight
forwarders to meet the new asset requirement. FMCSA believes this will
allow brokers and freight forwarders to transition to the new standard.
FMCSA invites comments from the public regarding other types of
assets that should not be considered assets readily available. FMCSA
also requests comments from the public regarding whether a
comprehensive list of appropriate assets is possible or desirable.
Entities Eligible To Provide Trust Funds for BMC-85 Filings
FMCSA proposes removing loan and finance companies from the list of
entities authorized to serve as BMC-85 trustees. FMCSA reaches this
conclusion for several reasons. First, FMCSA is not a financial
regulator, and given its primary safety mission it must rely on other
regulators to regulate the trustees that provide BMC-85 trust funds. In
that regard, FMCSA is concerned that loan and finance companies are not
adequately regulated at the State level for the purpose of issuing BMC-
85s. Because these entities are unregulated, they may engage in
practices that create risk to the public. Specifically, many of these
loan and finance companies offer access to a $75,000 trust via a
monthly membership fee. This business model is not within the intent of
MAP-21 and may not provide the readily available assets to pay claims.
Its meetings with both State and Federal regulators were informative on
this point. CSBS indicated that loan companies are not looked at for
safety and soundness or financial condition. They are generally
examined for consumer protection compliance. Moreover, there are too
many companies for the amount of state examination capacity. The FDIC
indicated that state finance companies are not regulated as robustly as
FDIC insured banks. And, the Florida Office of Financial Regulation,
which regulates Florida ``consumer finance companies,'' one of which is
a significant provider of BMC-85 trusts, indicated that there is no
regulation of these companies in the business that FMCSA allows them to
be engaged in. FMCSA welcomes comments from BMC-85 providers and others
as to why loan and finance companies are adequately regulated for the
purpose of issuing BMC-85s, as opposed to being regulated by states for
either purpose.
FMCSA also proposes a 3-year compliance date for trustees to meet
these new requirements to allow BMC-85 providers to transition.
Group Surety Bonds/Trust Funds
FMCSA does not currently allow the use of group surety bonds or
group trust funds (78 FR 54720, 54721, Sept. 5, 2013), and this NPRM
does not propose any changes to the agency's position. After
considering the comments on the ANPRM and additional agency discussion,
FMCSA determined that the use of these bonds and funds would not be
likely to provide a cost savings for brokers and freight forwarders, as
brokers and freight forwarders would still need to hold $75,000 in
financial responsibility. In addition, group surety bonds/trust funds
are difficult and costly to administer. As noted in the comment
discussion, the main proponent of their inclusion in implementation of
49 U.S.C. 13906(b) and (c) has since acknowledged that they are
inappropriate for FMCSA financial responsibility requirements, a factor
which FMCSA finds highly persuasive.
Immediate Suspension of Broker/Freight Forwarder Operating Authority
FMCSA proposes a new process for an immediate suspension of broker
or freight forwarder operating authority. If there is an actual
drawdown on a broker/freight forwarder surety bond or trust fund, FMCSA
will provide notice to the broker or freight forwarder that it has 7
business days to provide evidence to FMCSA that the surety or trust has
been replenished. If it does not provide such notice, FMCSA will
suspend that broker or freight forwarder's operating authority
registration.
A drawdown would be defined as a situation where one of the
following occurs: (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; or (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.
This proposal also requires that FMCSA provide the broker or
freight forwarder notice of the pending suspension and give it 7
business days to replenish the funds. If it does not replenish the
funds, the broker's or freight forwarder's registration will be
suspended via second notice. FMCSA believes that 7 business days gives
the broker or freight forwarder reasonable time to replenish the surety
bond or trust account, while also implementing Congress's mandate that
broker or freight forwarder operating authority registration be
immediately suspended in the event the broker/forwarder's financial
security falls below $75,000.
Surety or Trust Responsibilities in Cases of Broker/Freight Forwarder
Financial Failure or Insolvency
FMCSA proposes to define financial failure or insolvency as a
bankruptcy filing or State insolvency filing. If there is a financial
failure or an insolvency of the broker or freight forwarder and the
surety or trustee is notified of the bankruptcy or insolvency filing,
then the surety or trustee must notify FMCSA of the filing and initiate
cancellation of financial responsibility. After considering responses
to the ANPRM, FMCSA more fully appreciates the value of an objective
test of financial failure or insolvency such as a bankruptcy or
insolvency filing.\8\ This approach will minimize disputes and allow
for efficient implementation of this statutory provision. The agency
also notes that Congress defined a similar term ``insolvent'' in the
bankruptcy code at 11 U.S.C. 101(32). Given that similar
[[Page 848]]
term's placement in the Bankruptcy Code, it is appropriate to use
bankruptcy law to define ``financial failure or insolvency'' in the
implementation of the MAP-21 provisions.
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\8\ See comments of the Surety & Fidelity Association of
America, available in the docket at https://www.regulations.gov/document/FMCSA-2016-0102-0022.
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Consistent with FMCSA's primary safety mandate, the agency seeks to
implement this statute in a way that involves clear guidelines for
surety and trust providers with minimal agency involvement is. FMCSA
believes this proposal accomplishes that goal. To the extent that
brokers, sureties, or trustees are concerned about the bankruptcy
implications of this approach, FMCSA recognizes that those entities may
need to seek relief from the bankruptcy court to take action on the
BMC-84 or BMC-85 instruments in the event of a bankruptcy. Given that a
formal bankruptcy or insolvency filing is required, FMCSA expects few
instances where this portion of the NPRM will be triggered.
Further, MAP-21 requires that sureties or trustees ``publicly
advertise'' for claims in the event of a broker or freight forwarder
financial failure or insolvency. FMCSA proposes that once the surety or
trustee has notified FMCSA of the financial failure or insolvency, it
will have met its statutory mandate to ``publicly advertise.'' FMCSA
will help ensure that claimants are aware of the claims filing period
by posting notice of the claims period on the FMCSA Register on its
website. All claims will need to be filed directly with the surety or
trustee.
Enforcement Authority
FMCSA proposes to implement MAP-21's surety provider suspension
authority provision by providing 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.
FMCSA proposes to add language to 49 CFR part 386 to address civil
penalties authorized by 49 U.S.C. 13906(b) and (c) as well.
VIII. Section-by-Section Analysis
This section includes a summary of the proposed changes to 49 CFR
parts 386 and 387. The regulatory changes proposed are discussed in
numerical order.
Appendix B to Part 386--Penalty Schedule: Violations and Monetary
Penalties
In Appendix B to part 386, a new paragraph (g)(24) would be added
to highlight the monetary penalty for which a surety company or
financial institution found in violation of 49 U.S.C. 13906 or Sec.
387.307 would be liable.
Section 387.307 Property Broker Surety Bond or Trust Fund
In Sec. 387.307(b), a new standard for trust funds allowed under
the section would be added. Existing paragraph (c)(7) would be removed
and existing paragraph (c)(8) would be renumbered as paragraph (c)(7).
New paragraphs (e), (f), and (g) would be added.
Paragraph (e) would set out the triggers and procedures for
immediate suspension of a broker. The paragraph would establish the
role of the surety provider or financial institution, FMCSA, and the
broker.
Paragraph (f) would set out procedures and responsibilities for a
surety company or a financial institution and FMCSA following financial
failure or insolvency of a broker. A financial failure or insolvency of
a broker would be defined as a filing related to the broker pursuant to
Title 11 of the United States Code or a filing related to the broker
under an insolvency or similar proceeding under State law.
Paragraph (g) would set out procedures concerning suspension of a
surety company or financial institution's ability to file evidence of
financial responsibility with FMCSA and FMCSA's role in that action.
Penalties for violation of the requirements of this section or
subsection (b) of Title 49, section 13906 U.S.C. would be established.
IX. Regulatory Analyses
A. Executive Order (E.O.) 12866 (Regulatory Planning and Review), E.O.
13563 (Improving Regulation and Regulatory Review), and DOT Regulatory
Policies and Procedures
The Office of Information and Regulatory Affairs (OIRA) determined
that this rulemaking is not a significant regulatory action under
section 3(f) of E.O. 12866 (58 FR 51735, Oct. 4, 1993), Regulatory
Planning and Review, as supplemented by E.O. 13563 (76 FR 3821, Jan.
21, 2011), Improving Regulation and Regulatory Review and does not
require an assessment of potential costs and benefits under section
6(a)(3) of that Order. This rule is also not significant within the
meaning of DOT regulations (49 CFR 5.13(a)). Accordingly, the Office of
Management and Budget has not reviewed it under these Orders. A draft
regulatory impact analysis is available in the docket. That document:
Identifies the problem targeted by this rulemaking,
including a statement of the need for the action.
Defines the scope and parameters of the analysis.
Defines the baseline.
Defines and evaluates the costs and benefits of the
action.
Copies of the full analysis are available in the docket or by
contacting the person listed under FOR FURTHER INFORMATION CONTACT.
Summary of Estimated Costs
Brokers and freight forwarders, surety bond and trust fund
providers, and the Federal Government would incur costs for compliance
and implementation. The quantified costs of the proposed rule include
notification costs related to a drawdown on a surety bond or trust
fund, and immediate suspension proceedings, FMCSA costs to hire new
personnel, and costs associated with the development and maintenance of
the BMC-84/85 Filing and Management IT System. FMCSA estimates that the
10-year cost of the proposed rule would total $5.4 million on an
undiscounted basis, $3.8 million discounted at 7 percent, and $4.6
million discounted at 3 percent (all in 2020 dollars). The annualized
cost of the rule would be $545,505 discounted at 7 percent and $542,343
at 3 percent. Ninety-eight percent of the costs would be incurred by
the Federal Government.
Summary of Estimated Benefits
This proposed rule would result in benefits to motor carriers
amounting to a decrease in the claims that go unpaid. FMCSA expects
this result for a number of reasons. First, FMCSA proposes to
immediately suspend brokers that do not respond following a drawdown on
their financial security. This step should alleviate broker non-payment
issues as financially insecure brokers would have less time to run up
claims they may never pay, while operating lawfully. Building the BMC-
84/85 Filing Management System would efficiently exchange information
between motor carriers, brokers, financial responsibility providers,
and FMCSA, thereby reducing the information asymmetry concerns
associated with broker and carrier transactions. Given a lack of data,
FMCSA is unable to quantify benefits resulting from this rule, but
qualitatively discusses benefits directly
[[Page 849]]
related to three provisions in the regulatory impact analysis.
FMCSA cannot directly estimate an impact on safety resulting from
the proposal. OOIDA \9\ contends that broker non-payment of claims
causes smaller carriers to defer maintenance on their vehicles or ``run
harder until they make up the shortfall,'' both resulting in unsafe
driving practices.\10\ TIA contends that ``small carriers and owner-
operators often operate on thin financial margins and need the revenue
from every load to maintain their equipment so that it meets
roadworthiness and safety requirements. If they are not paid, necessary
maintenance and repairs may be put off or ignored because of the
reduced cash flow.'' If the proposal is finalized, carriers would have
more information to avoid contracting with unscrupulous brokers and
would also receive payment for work completed in a timelier manner,
without use of interpleader proceedings. Both of these outcomes could
lead to an increase in safety if motor carriers choose to use these
resources to further their safety focus.
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\9\ This comment is available in the docket at https://www.regulations.gov/document/FMCSA-2016-0102-0076.
\10\ TIA also references potential safety benefits of this
rulemaking, available in the docket at https://www.regulations.gov/document/FMCSA-2016-0102-0032.
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B. Congressional Review Act
Pursuant to the Congressional Review Act (5 U.S.C. 801-808), the
Office of Information and Regulatory Affairs (OIRA) designated this
rule as not a ``major rule.'' \11\
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\11\ A ``major rule'' means any rule that the OMB finds has
resulted in or is likely to result in (a) an annual effect on the
economy of $100 million or more; (b) a major increase in costs or
prices for consumers, individual industries, geographic regions,
Federal, State, or local government agencies; or (c) significant
adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic
and export markets (49 CFR 389.3).
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C. Advance Notice of Proposed Rulemaking
Under 49 U.S.C. 31136(g), FMCSA is required to publish an ANPRM or
proceed with a negotiated rulemaking, if a proposed rule is likely to
lead to the promulgation of a major rule. However, this requirement
does not extend to rulemakings promulgated under the agency's
jurisdiction pursuant to 49 U.S.C. 13501 or 13531, which are the basis
of this rulemaking. Nonetheless, on September 27, 2018, FMCSA
voluntarily published an ANPRM (83 FR 48779).
D. Regulatory Flexibility Act
The Regulatory Flexibility Act of 1980, Public Law 96-354, 94 Stat.
1164 (5 U.S.C. 601-612), as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 857, Mar.
29, 1996) and the Small Business Jobs Act of 2010 (Pub. L. 111-240, 124
Stat. 2504, Sept. 27, 2010), requires Federal agencies to consider the
effects of the regulatory action on small business and other small
entities and to minimize any significant economic impact. The term
``small entities'' comprises small businesses and not-for-profit
organizations that are independently owned and operated and are not
dominant in their fields, and governmental jurisdictions with
populations of less than 50,000. Accordingly, DOT policy requires an
analysis of the impact of all regulations on small entities, and
mandates that agencies strive to lessen any adverse effects on these
businesses. FMCSA has not determined whether this proposed rule would
have a significant economic impact on a substantial number of small
entities. Therefore, FMCSA is publishing this initial regulatory
flexibility analysis (IRFA) to aid the public in commenting on the
potential small business impacts of the proposals in this NPRM. We
invite all interested parties to submit data and information regarding
the potential economic impact that would result from adoption of the
proposals in this NPRM. We will consider all comments received in the
public comment process when making a determination in the Final
Regulatory Flexibility Assessment.
An IRFA must contain the following:
1. A description of the reasons why the action by the agency is
being considered;
2. A succinct statement of the objective of, and legal basis for,
the proposed rule;
3. A description of and, where feasible, an estimate of the number
of small entities to which the proposed rule will apply;
4. A description of the projected reporting, recordkeeping, and
other compliance requirements of the proposed rule, including an
estimate of the classes of small entities which will be subject to the
requirement and the type of professional skills necessary for
preparation of the report or record;
5. An identification, to the extent practicable, of all relevant
Federal rules that may duplicate, overlap, or conflict with the
proposed rule; and
6. A description of any significant alternatives to the proposed
rule which accomplish the stated objectives of applicable statutes and
which minimize any significant economic impact of the proposed rule on
small entities.
Why the Action by the Agency Is Being Considered
In 2012, Congress enacted MAP-21, specifically, section 32918,
which contained requirements for the financial security of brokers and
freight forwarders that amended 49 U.S.C. 13906. FMCSA proposes
modifications to broker and freight forwarder financial responsibility
requirements in accordance with the MAP-21 mandate. On September 27,
2018, FMCSA published an ANPRM (83 FR 48779) saying that the agency was
considering changes or additions to eight separate areas: Group surety
bonds/trust funds, assets readily available, immediate suspension of
broker/freight forwarder operating authority, surety or trust
responsibilities in cases of broker/freight forwarder financial failure
or insolvency, enforcement authority, entities eligible to provide
trust funds for form BMC-85 trust fund filings, Form BMC-84 and BMC-85
trust fund revisions, and HHG.
The Objectives of and Legal Basis for the Proposed Rule
In 2012, Congress enacted section 32918 of MAP-21, which contained
requirements for the financial security of brokers and freight
forwarders, amending 49 U.S.C. 13906. Congress mandated that the agency
issue a rulemaking to implement the new statutory requirements MAP-21
section 32918(b). Congress mandated that FMCSA conduct rulemaking to
implement the statutory changes. The objective of this rulemaking is to
complete the implementation of Congress's directive and to help ensure
that motor carriers are paid for the services they provide for brokers
and freight forwarders.
A Description of, and Where Feasible an Estimate of, the Number of
Small Entities to Which the Proposed Rule Will Apply
Small entity is defined in 5 U.S.C. 601. Section 601(3) as having
the same meaning as small business concern under Section 3 of the Small
Business Act. This includes any small business concern that is
independently owned and operated and is not dominant in its field of
operation. Section 601(4) includes within the definition of small
entities not-for-profit enterprises that are independently owned and
operated and are not dominant in their fields of operation. In
addition, Section 601(5)
[[Page 850]]
defines small entities as governments of cities, counties, towns,
townships, villages, school districts, or special districts with
populations less than 50,000.
This proposed rule would affect financial responsibility providers,
brokers, and freight forwarders.
The financial responsibility providers that would be affected by
this proposed rule operate under many different North American Industry
Classification System \12\ (NAICS) codes with differing size standards.
Additionally, the financial responsibility providers that would be
affected by the rule are a subset of the entities within these codes.
Many of the entities operating under these NAICS codes have various
functions that do not include providing financial responsibility to
brokers or freight forwarders. In providing a wide range of NAICS codes
in the finance and insurance sectors, FMCSA believes it captures
financial responsibility providers who perform various other functions.
Table 2, below, shows the Small Business Administration (SBA) size
standards for finance and insurance, which ranges from $8 million in
revenue per year for insurance agencies and brokerages, to $600 million
in revenue per year for commercial banking.
---------------------------------------------------------------------------
\12\ More information about NAICS is available at: (accessed
June 29, 2022).
---------------------------------------------------------------------------
Brokers and freight forwarders operate in the transportation sector
under the NAICS code 48851. As shown in Table 2, the SBA size standard
for freight transportation arrangement is $16.5 million in revenue.
Table 2--SBA Size Standards for Selected Industries
[In millions of 2019$]
------------------------------------------------------------------------
SBA size
NAICS code NAICS industry description standard
------------------------------------------------------------------------
Subsector 522--Credit Intermediation and Related Activities
------------------------------------------------------------------------
52211.................... Commercial Banking........... $600
52229.................... All Other Nondepository 41.5
Credit Intermediation.
------------------------------------------------------------------------
Subsector 523--Securities, Commodity Contracts, and Other Financial
Investments and Related Activities
------------------------------------------------------------------------
52312.................... Securities Brokerage......... 41.5
52313.................... Commodity Contracts Dealing.. 41.5
52314.................... Commodity Contracts Brokerage 41.5
52321.................... Securities and Commodity 41.5
Exchanges.
52391.................... Miscellaneous Intermediation. 41.5
------------------------------------------------------------------------
Subsector 524--Insurance Carriers and Related Activities
------------------------------------------------------------------------
524126................... Direct Property and Casualty 41.5
Insurance Carriers.
524127................... Direct Title Insurance 41.5
Carriers.
524128................... Other Direct Insurance 41.5
(except life, health, and
medical) Carriers.
52413.................... Reinsurance Carriers......... 41.5
52421.................... Insurance Agencies and 8
Brokerages.
524292................... Third Party Administration of 35
Insurance and Pension Funds.
------------------------------------------------------------------------
Subsector 488--Support Activities for Transportation
------------------------------------------------------------------------
48851.................... Freight Transportation 16.5
Arrangement.
------------------------------------------------------------------------
FMCSA examined data from the 2017 Economic Census, the most recent
Census for which data were available, to determine the percentage of
firms that have revenue at or below SBA's thresholds within each of the
NAICS industries.\13\ Boundaries for the revenue categories used in the
Economic Census do not exactly coincide with the SBA thresholds.
Instead, the SBA threshold generally falls between two different
revenue categories. However, FMCSA was able to make reasonable
estimates as to the percent of small entities within each NAICS
industry group.
---------------------------------------------------------------------------
\13\ U.S. Census Bureau. 2017 Economic Census. Available at:
https://data.census.gov/cedsci/table?q=EC1700&n=48-49&tid=ECNSIZE2017.EC1700SIZEREVEST&hidePreview=true (accessed Apr.
20, 2022).
---------------------------------------------------------------------------
The commercial banking industry group has a revenue size standard
of $600 million. The largest Economic Census revenue category is $100
million or more. As such, FMCSA could not determine the percent of
entities within this NAICS industry group that would be considered
small, and conservatively estimates that all commercial banking
entities are small entities as defined by the SBA.
For Other Nondepository Credit Intermediation, the $41.5 million
SBA threshold falls between two Economic Census revenue categories, $25
million and $100 million. The percentages of Other Nondepository Credit
Intermediates with revenue less than these amounts were 50 percent and
54 percent, respectively. Because the SBA threshold is closer to the
lower of these two boundaries, FMCSA has assumed that the percent of
these entities that are small will be closer to 50 percent and is using
that figure.
The Securities Brokerage industry group focuses on underwriting
securities issues and/or making markets for securities and commodities.
The SBA size standard for this industry group is $41.5 million. The
$41.5 million SBA threshold falls between two Economic Census revenue
categories, $25 million and $100 million. The percentages of Securities
Brokerages with revenue less than these amounts were 97 percent and 98
percent, respectively. Because the SBA threshold is closer to the lower
of these two boundaries, FMCSA has assumed that the percent of
securities brokerages that are small will be closer to 97 percent and
is using that figure.
The Commodity Contracts Dealing industry group focuses on acting as
[[Page 851]]
agents between buyers and sellers of securities and commodities
(52313). The SBA size standard for this industry group is $41.5
million. The $41.5 million SBA threshold falls between two Economic
Census revenue categories, $25 million and $100 million. The
percentages of commodity contracts dealers with revenue less than these
amounts were 75 percent and 81 percent. Because the SBA threshold is
closer to the lower of these two boundaries, FMCSA has assumed that the
percent of commodity contracts dealers that are small will be closer to
75 percent and is using that figure.
The Commodity Contracts Brokerage industry group focuses on
providing securities and commodity exchange services (52314). The SBA
size standard for this industry group is $41.5 million. The $41.5
million SBA threshold falls between two Economic Census revenue
categories, $25 million and $100 million. The percentages of commodity
contracts brokers with revenue less than these amounts were 84 percent
and 86 percent. Because the SBA threshold is closer to the lower of
these two boundaries, FMCSA has assumed that the percent of commodity
contracts brokers that are small will be closer to 84 percent and is
using that figure.
The Securities and Commodity Exchanges industry group provides
marketplaces and mechanisms for the purpose of facilitating the buying
and selling of stocks, stock options, bonds or commodity contracts
(52321). The SBA size standard for this industry group is $41.5
million. The $41.5 million SBA threshold falls between two Economic
Census revenue categories, $25 million and $100 million. There are 13
total firms that operated for the entire year under the securities and
commodity exchanges industry group, but the Census has redacted the
number of firms with revenue less than $100 million. The Census reports
that there are four firms with revenue of $100 million or greater,
which leads FMCSA to estimate that there are nine firms with revenue
below $100 million. FMCSA conservatively estimates that all nine firms
with revenue below $100 million (69 percent of the industry group) are
considered small.
The Miscellaneous Intermediation industry group primarily engages
in acting as principals in buying or selling of financial contracts
(52391). The SBA size standard for this industry group is $41.5
million. The $41.5 million SBA threshold falls between two Economic
Census revenue categories, $25 million and $100 million. The
percentages of miscellaneous intermediation firms with revenue less
than these amounts were 97 percent and 99.6 percent, respectively.
Because the SBA threshold is closer to the lower of these two
boundaries, FMCSA has assumed that the percent of miscellaneous
intermediates that are small will be closer to 97 percent and is using
that figure.
The Direct Property and Casualty Insurance Carriers industry group
primarily engages in initially underwriting insurance policies
(524126). The SBA size standard for this industry group is $41.5
million. The $41.5 million SBA threshold falls between two Economic
Census revenue categories, $25 million and $100 million. The
percentages of direct property and casualty insurance carrier firms
with revenue less than these amounts were 81 percent and 88 percent.
Because the SBA threshold is closer to the lower of these two
boundaries, FMCSA has assumed that the percent of direct property and
casualty insurers that are small will be closer to 81 percent and is
using that figure.
The Direct Title Insurance Carriers industry group primarily
engages in initially underwriting title insurance policies (524127).
The SBA size standard for this industry group is $41.5 million. The
$41.5 million SBA threshold falls between two Economic Census revenue
categories, $25 million and $100 million. The percentages of direct
title insurers with revenue less than these amounts were 66 percent and
67 percent, respectively. Because the SBA threshold is closer to the
lower of these two boundaries, FMCSA has assumed that the percent of
direct title insurers that are small will be closer to 66 percent and
is using that figure.
The Other Direct Insurance Carriers industry group primarily
engages in initially underwriting insurance policies (524128). The SBA
size standard for this industry group is $41.5 million. The $41.5
million SBA threshold falls between two Economic Census revenue
categories, $25 million and $100 million. The percentages of other
direct insurance carriers with revenue less than these amounts were 58
percent and 63 percent, respectively. Because the SBA threshold is
closer to the lower of these two boundaries, FMCSA has assumed that the
percent of other direct insurance carriers that are small will be
closer to 58 percent and is using that figure.
The Reinsurance Carriers industry group primarily engages in
assuming all or part of the risk associated with insurance policies
originally underwritten by a different provider (52413). The SBA size
standard for this industry group is $41.5 million. The $41.5 million
SBA threshold falls between two Economic Census revenue categories, $10
million and $100 million. The percentages of reinsurance carriers with
revenue less than these amounts were 49 percent and 60 percent,
respectively. The SBA threshold is not near either of these revenue
categories, FMCSA conservatively estimates that the percent of
reinsurance carrier firms that are small will be closer to 60 percent
and is using that figure.
The Insurance Agencies and Brokerages industry group primarily
engages in selling insurance (52421). The SBA size standard for this
industry group is $8 million. The $8 million SBA threshold falls
between two Economic Census revenue categories, $5 million and $10
million. The percentages of insurance agencies and brokerages with
revenue less than these amounts were 98 percent and 99 percent,
respectively. Because the SBA threshold is closer to the higher of
these two boundaries, FMCSA has assumed that the percent of insurance
agencies and brokerages that are small will be closer to 99 percent and
is using that figure.
The Third Party Administration of Insurance and Pension Funds
industry group primarily engages in providing third-party
administrative services of insurance (524292). The SBA size standard
for this industry group is $35 million. The $35 million SBA threshold
falls between two Economic Census revenue categories, $25 million and
$100 million. The percentages of firms with revenue less than these
amounts were 92 percent and 97 percent, respectively. Because the SBA
threshold is closer to the lower of these two boundaries, FMCSA has
assumed that the percent of firms that are small will be closer to 92
percent and is using that figure.
The Freight Transportation Arrangement industry group primarily
engages in arranging the transportation of freight between shippers and
carriers (48851). The SBA size standard for this industry group is
$16.5 million. The $16.5 million SBA threshold falls between two
Economic Census revenue categories, $10 million and $25 million. The
percentages of firms with revenue less than these amounts were 93
percent and 97 percent, respectively. Because the SBA threshold is
closer to the lower of these two boundaries, FMCSA has assumed that the
percent of firms that are small will be closer to 93 percent and is
using that figure.
Table 3 below shows the complete estimates of the number of small
entities within the NAICS industry groups that
[[Page 852]]
may be affected by this rule. FMCSA notes that there are approximately
375 entities providing financial responsibility services (i.e.,
entities that have filed BMC-84s or BMC-85s with FMCSA on behalf of
brokers), which is a small subset of the firms identified in the
commercial industry groups below.
Table 3--Estimates of Numbers of Small Entities
----------------------------------------------------------------------------------------------------------------
Total number Number of Percent of all
NAICS code Description of firms small entities firms
----------------------------------------------------------------------------------------------------------------
52211........................ Commercial Banking............... 4,804 4,804 100
52229........................ All Other Nondepository Credit 10,411 5,255 50
Intermediation.
52312........................ Securities Brokerage............. 6,009 5,832 97
52313........................ Commodity Contracts Dealing...... 493 368 75
52314........................ Commodity Contracts Brokerage.... 728 608 84
52321........................ Securities and Commodity 13 9 69
Exchanges.
52391........................ Miscellaneous Intermediation..... 6,912 6,715 97
524126....................... Direct Property and Casualty 2,079 1,675 81
Insurance Carriers.
524127....................... Direct Title Insurance Carriers.. 662 438 66
524128....................... Other Direct Insurance (except 285 166 58
life, health, and medical)
Carriers.
52413........................ Reinsurance Carriers............. 129 77 60
52421........................ Insurance Agencies and Brokerages 106,260 105,056 99
524292....................... Third Party Administration of 2,498 2,306 92
Insurance and Pension Funds.
48851........................ Freight Transportation 13,252 12,332 93
Arrangement.
----------------------------------------------------------------------------------------------------------------
A Description of the Proposed Reporting, Recordkeeping and Other
Compliance Requirements of the Proposed Rule, Including an Estimate of
the Classes of Small Entities Which Will Be Subject to the Requirement
and the Type of Professional Skills Necessary for Preparation of the
Report or Record
This NPRM would include recordkeeping requirements pertaining to
small financial responsibility providers and brokers. These entities
would be required to provide notification to FMCSA of specific activity
on a broker bond or trust fund. FMCSA anticipates that these
notifications can be completed by office clerks.
A Description of Any Significant Alternatives to the Proposed Rule
Which Accomplish the Stated Objectives of Applicable Statutes and Which
Minimize Any Significant Economic Impact of the Proposed Rule on Small
Entities
FMCSA attempted to draft a proposed rule that would minimize any
significant economic impact on small entities. FMCSA is proposing a 3-
year compliance date in an effort to allow ample time for small
entities to meet the requirements of the rule. This compliance date
takes into account the resources available to small entities. FMCSA is
not aware of any significant alternatives that would meet the intent of
our statutory requirements but nevertheless requests comment on any
alternatives that would meet the intent of the statute and prove cost
beneficial for small entities.
Description of Steps Taken by a Covered Agency To Minimize Costs of
Credit for Small Entities
FMCSA is not a covered agency as defined in section 609(d)(2) of
the Regulatory Flexibility Act and has taken no steps to minimize the
additional cost of credit for small entities.
Requests for Comment To Assist Regulatory Flexibility Analysis
FMCSA requests comments on all aspects of this initial regulatory
flexibility analysis.
E. Assistance for Small Entities
In accordance with section 213(a) of the Small Business Regulatory
Enforcement Fairness Act of 1996,\14\ FMCSA wants to assist small
entities in understanding this proposed rule so they can better
evaluate its effects on themselves and participate in the rulemaking
initiative. If the proposed rule would affect your small business,
organization, or governmental jurisdiction and you have questions
concerning its provisions or options for compliance, please consult the
person listed under FOR FURTHER INFORMATION CONTACT.
---------------------------------------------------------------------------
\14\ Public Law 104-121, 110 Stat. 857, (Mar. 29, 1996).
---------------------------------------------------------------------------
Small businesses may send comments on the actions of Federal
employees who enforce or otherwise determine compliance with Federal
regulations to the Small Business Administration's Small Business and
Agriculture Regulatory Enforcement Ombudsman (Office of the National
Ombudsman, see https://www.sba.gov/about-sba/oversight-advocacy/office-national-ombudsman) and the Regional Small Business Regulatory Fairness
Boards. The Ombudsman evaluates these actions annually and rates each
agency's responsiveness to small business. If you wish to comment on
actions by employees of FMCSA, call 1-888-REG-FAIR (1-888-734-3247).
DOT has a policy regarding the rights of small entities to regulatory
enforcement fairness and an explicit policy against retaliation for
exercising these rights.
F. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
(UMRA) requires Federal agencies to assess the effects of their
discretionary regulatory actions. The Act addresses actions that may
result in the expenditure by a State, local, or Tribal government, in
the aggregate, or by the private sector of $178 million (which is the
value equivalent of $100 million in 1995, adjusted for inflation to
2021 levels) or more in any 1 year. Though this NPRM would not result
in such an expenditure, and the analytical requirements of UMRA do not
apply as a result, the agency discusses the effects of this proposed
rule elsewhere in this preamble and in the regulatory impact analysis
available in the docket.
G. Paperwork Reduction Act
This proposed rule does not propose new information collection
requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520). The agency is not proposing any changes to Forms BMC-84 and BMC-
85 at this time but will consider whether it needs to modify Forms BMC-
84 and BMC-85 after reviewing the comments on this NPRM. Should
revisions to the
[[Page 853]]
forms be deemed necessary, the agency will seek approval of revised
forms from OIRA during the 3-year compliance period we propose for
portions of this rule.
H. E.O. 13132 (Federalism)
A rule has implications for federalism under section 1(a) of E.O.
13132 if it has ``substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government.''
FMCSA has determined that this rule would not have substantial
direct costs on or for States, nor would it limit the policymaking
discretion of States. Nothing in this document preempts any State law
or regulation. Therefore, this rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Impact
Statement.
I. Privacy
The Consolidated Appropriations Act, 2005,\15\ requires the agency
to assess the privacy impact of a regulation that will affect the
privacy of individuals. This NPRM would not require the collection of
personally identifiable information (PII). The Privacy Act (5 U.S.C.
552a) applies only to Federal agencies and any non-Federal agency that
receives records contained in a system of records from a Federal agency
for use in a matching program.
---------------------------------------------------------------------------
\15\ Public Law. 108-447, 118 Stat. 2809, 3268, note following 5
U.S.C. 552a (Dec. 4, 2014).
---------------------------------------------------------------------------
The E-Government Act of 2002,\16\ requires Federal agencies to
conduct a Privacy Impact Assessment (PIA) for new or substantially
changed technology that collects, maintains, or disseminates
information in an identifiable form.
---------------------------------------------------------------------------
\16\ Public Law 107-347, sec. 208, 116 Stat. 2899, 2921 (Dec.
17, 2002).
---------------------------------------------------------------------------
No new or substantially changed technology would collect, maintain,
or disseminate information as a result of this rule. Accordingly, FMCSA
has not conducted a PIA.
In addition, the agency submitted a Privacy Threshold Assessment to
evaluate the risks and effects the proposed rulemaking might have on
collecting, storing, and sharing personally identifiable information.
The DOT Privacy Office has determined that this rulemaking does not
create privacy risk.
J. E.O. 13175 (Indian Tribal Governments)
This rule does not have Tribal implications under E.O. 13175,
Consultation and Coordination with Indian Tribal Governments, because
it does not have a substantial direct effect on one or more Indian
Tribes, on the relationship between the Federal Government and Indian
Tribes, or on the distribution of power and responsibilities between
the Federal Government and Indian Tribes.
K. National Environmental Policy Act of 1969
FMCSA analyzed this proposed rule pursuant to the National
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.) and
determined this action is categorically excluded from further analysis
and documentation in an environmental assessment or environmental
impact statement under FMCSA Order 5610.1 (69 FR 9680), Appendix 2,
paragraphs 6.k and 6.q. The categorical exclusions (CEs) in paragraph
6.k and 6.q cover broker activities and implementation of record
preservation. The proposed requirements in this rule are covered by
these CEs and do not have any effect on the quality of the environment.
List of Subjects
49 CFR Part 386
Administrative practice and procedure, Brokers, Freight forwarders,
Hazardous materials transportation, Highway safety, Motor carriers,
Motor vehicle safety, Penalties.
49 CFR Part 387
Buses, Freight, Freight forwarders, Hazardous materials
transportation, Highway safety, Insurance, Intergovernmental relations,
Motor carriers, Motor vehicle safety, Moving of household goods,
Penalties, Reporting and recordkeeping requirements, Surety bonds.
For the reasons set forth in the preamble, FMCSA proposes to amend
49 CFR parts 386 and 387 as follows:
PART 386--RULES OF PRACTICE FOR FMCSA PROCEEDINGS
0
1. The authority citation for part 386 continues to read as follows:
Authority: 28 U.S.C. 2461 note; 49 U.S.C. 113, 1301 note,
31306a; 49 U.S.C. chapters 5, 51, 131-141, 145-149, 311, 313, and
315; and 49 CFR 1.81, 1.87.
0
2. Amend Appendix B by adding paragraph (g)(24) to read as follows:
Appendix B to Part 386--Penalty Schedule: Violations and Monetary
Penalties
* * * * *
(g) * * *
(24) A surety company or financial institution for a broker or
freight forwarder pursuant to Sec. Sec. 387.307 or 387.403T and
violates subsection (b) or (c) of Title 49 of the United States
Code, Section 13906 or Sec. 387.307, is liable to the United States
for a penalty of $10,000 for each violation.
* * * * *
PART 387--MINIMUM LEVELS OF FINANCIAL RESPONSIBILITY FOR MOTOR
CARRIERS
0
3. The authority citation continues to read as follows:
Authority: 49 U.S.C. 13101, 13301, 13906, 13908, 14701, 31138,
31139; sec. 204(a), Pub. L. 104-88, 109 Stat. 803, 941; and 49 CFR
1.87.
0
4. Amend Sec. 387.307 by:
0
a. Revising paragraph (b) to read as set forth below;
0
b. In paragraph (c)(6), adding the phrase ``or'' after the semicolon;
0
c. Removing paragraph (c)(8);
0
d. Redesignating paragraph (c)(8) as paragraph (c)(7); and
0
e. Adding paragraphs (e), (f), and (g) to read as set forth below.
The revision and additions read as follows:
Sec. 387.307 Property broker surety bond or trust fund.
* * * * *
(b) Evidence of Security. Trust funds under this section must
contain assets aggregating to $75,000 that can be liquidated to cash
within 7 business days. Assets included in any trust fund filed under
this section shall not include interests in real property,
intercorporate agreements or guarantees, internal letters of credit,
illiquid assets (such as second trust deeds, personal property and
vehicles), bonds that have not received the highest rating from a
nationally recognized statistical rating organization registered with
the Securities and Exchange Commission, or any other asset the broker
cannot certify on Form BMC-85 is convertible to cash within 7 business
days.
* * * * *
(e) Immediate suspension. (1) If a surety company issuing a Form
BMC-84 or a financial institution issuing a Form BMC-85 makes a payment
from the surety bond or trust fund for a claim from a shipper or motor
carrier as described in paragraph (b) of this section: (1) with the
consent of the broker; (2) when the broker fails to respond to notice
of a claim within 14 calendar days of notice by the surety company or
financial institution; or (3) when there is a judgment against the
broker, the surety company or financial institution shall notify FMCSA
of the
[[Page 854]]
payment and its amount. The surety company or financial institution
shall provide written notice of such payment to FMCSA via electronic
means.
(2) Upon notification by the surety company or financial
institution in accordance with paragraph (e)(1) of this section, FMCSA
shall provide written notice to the broker that its operating authority
issued pursuant to part 365 will be suspended within 7 business days of
the date of the notice unless the broker provides written evidence to
FMCSA that the surety bond or trust fund has been restored to the
$75,000 amount required by this section. FMCSA will provide a second
written notice to the broker of any suspension.
(f) Financial failure or insolvency of the broker. (1) If a surety
company or financial institution is notified of the financial failure
or insolvency of a broker, such surety company or financial institution
shall initiate cancellation of the Form BMC-84 or Form BMC-85 pursuant
to paragraph (d)(2)(i) of this section. A financial failure or
insolvency of a broker is defined as a filing related to the broker
pursuant to Title 11 of the United States Code or a filing related to
the broker under an insolvency or similar proceeding under State law.
(2) Upon notification by the surety or financial institution, FMCSA
shall immediately provide written notice of the cancellation in the
FMCSA Register on its public website. The surety or financial
institution shall accept claims against the BMC-84 surety bond or BMC-
85 trust fund for 60 calendar days (extended to the next business day
if the final day of the period falls on a weekend or Federal holiday)
following FMCSA's public notification of the financial failure or
insolvency in the FMCSA Register.
(g) Suspension of surety company or financial institution. (1) If a
surety company or financial institution violates the requirements of
this section or subsection (b) of Title 49, section 13906 of the United
States Code, FMCSA may suspend the authorization of such surety company
or financial institution to have its instruments filed as evidence of
financial responsibility pursuant to Sec. 387.307 for 3 years.
(2) If FMCSA initiates a suspension action pursuant to paragraph
(g)(1) of this section it shall provide written notice to the surety
company or financial institution, provide 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 company or financial institution to
provide evidence contesting such proposed suspension, and then render a
final decision in writing.
Issued under authority delegated in 49 CFR 1.87.
Robin Hutcheson,
Administrator.
[FR Doc. 2022-28259 Filed 1-4-23; 8:45 am]
BILLING CODE 4910-EX-P