Editorial · September 17, 2013
Freight Broker Bond Rules: What Shippers Should Know
A freight broker bond is a surety bond that a broker files with the Federal Motor Carrier Safety Administration (FMCSA). Under MAP-21, a 2012 transportation law, the bond will be available to pay qualifying claims that come from a broker's failure to pay freight charges. FMCSA says a broker must file a bond or trust fund agreement for $75,000, starting October 1, 2013. The current figure for a general freight broker is $10,000. A shipper can check a broker's licensing and insurance records in FMCSA's public Licensing and Insurance (L&I) database at no cost.
What changes on October 1, 2013
The $75,000 minimum is in section 32918 of MAP-21, the transportation law signed on July 6, 2012. It says each broker covered by the financial security rules must provide financial security of $75,000. The number of branch offices or sales agents does not change the amount.
FMCSA's questions and answers say a general freight broker must keep a surety bond or trust fund agreement of $10,000. Beginning October 1, 2013, a broker will need to file one for $75,000. On September 5, 2013, FMCSA issued guidance on how brokers can comply with the new requirements and on its enforcement of them.
The October 1, 2013 date follows from the law. The changes in section 32918 take effect one year after "the date of enactment." Section 3 of MAP-21 treats that phrase as the effective date, October 1, 2012.
A broker's surety bond or trust fund agreement goes on file with FMCSA on Form BMC-84 or BMC-85. FMCSA says this filing must be on record before it issues broker authority.
What the bond pays, and what it does not
Starting October 1, 2013, the bond will be available to pay any qualifying claim against a broker that comes from its failure to pay freight charges. Section 32918 lists three ways a claim can qualify:
- the broker agrees to the payment, subject to review by the surety provider (the provider of the bond)
- the broker does not respond to adequate notice to address whether the claim is valid, and the surety provider decides that it is
- after the claimant's reasonable try at the first two ways, the claim stays unresolved for a reasonable time and ends in a judgment against the broker
From October 1, 2013, the surety provider must respond to a claim within 30 days of getting notice of it. It must also explain any denial in writing.
Also from that date, if a broker suffers financial failure or insolvency, the surety provider must give notice to cancel the security. It must then publicly advertise for claims for 60 days, starting when the Secretary of Transportation publishes that notice. Within 30 days after those 60 days end, it must pay all uncontested claims received in that time. If those claims add up to more than the security available, each claimant gets a pro rata share (in proportion to its claim).
The law ties the bond to unpaid freight charges, so do not treat it as cargo insurance. FMCSA's questions and answers say a broker assumes no responsibility for the shipment. They also say a loss or damage claim must be filed with the appropriate motor carrier (trucking company). A broker may help a shipper file the claim. FMCSA also says that since March 21, 2011, only household goods carriers and household goods freight forwarders need to have evidence of cargo insurance on file with it. Ask the carrier whether it has cargo insurance, and get proof in writing.
How to check a broker's registration
- Get the MC number. Brokers apply for operating authority on Form OP-1, and FMCSA lists that authority as an MC number. Ask for the number and the broker's exact legal name.
- Search the L&I system. Enter the MC number as the docket number, or search by name and state.
- Open the record. FMCSA's record page has a row of six links. Three are for insurance: active or pending, rejected and history. The others are authority history, pending application and revocation. FMCSA lists the BMC-84 or BMC-85 among the insurance filings a broker must have on file, so start with the insurance links. Then read the authority history and revocation links for any sign of trouble.
- Confirm the amount. FMCSA says the filing must be for $75,000 from October 1, 2013. Ask the broker for proof of its bond or trust fund filing.
- Allow for delays. FMCSA asks users to allow 3 to 5 working days for entry of insurance filings mailed to it. If a record looks out of date, ask the broker for its paperwork and check again.
- Check again before large shipments. Starting October 1, 2013, the holder of the security must give the Secretary of Transportation electronic notice of a cancellation. The notice is due at least 30 days before the cancellation takes effect. The Secretary must post it right away on the Department of Transportation's public website.
Why an unregistered broker is a risk
A person may act as an interstate broker only if registered as a broker and following the registration rules. The person must also meet the financial security rules. The law makes three limited exceptions, such as for licensed customs brokers on customs business.
Anyone who knowingly authorizes, consents to or permits a violation of that rule, directly or indirectly, is liable to the injured party. That covers all valid claims, regardless of amount. The person also faces a civil penalty of up to $10,000 for each violation. The law applies both liabilities jointly and severally to any company or partnership involved and to its officers, directors and principals. That means each can be held liable for the whole amount.
FMCSA says a motor carrier that brokers loads, even occasionally, must register as a broker as well as a carrier. If a company says it will arrange the truck rather than haul your freight itself, ask to see its broker registration.