Broker and Freight Forwarder Financial Responsibility
Final rule.
CFR Part: "49 CFR Parts 386 and 387"
RIN Number: "RIN 2126-AC10"
Citation: "88 FR 78656"
Document Number: "Docket No. FMCSA-2016-0102"
Page Number: "78656"
"Rules and Regulations"
Agency: "
SUMMARY: FMCSA amends the regulations pertaining to financial responsibility requirements for brokers of property and freight forwarders 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 brokers and freight forwarders, which are filed using Form BMC-85, Broker's or Freight Forwarder's Trust Fund Agreement under 49 U.S.C. 13906 or Notice of Cancellation of the Agreement.
DATES:
Effective date: This regulation is effective
Expiration dates: Section 387.307T, which contains the current regulations on broker of property surety bonds or trust funds, expires as of
Section 387.307, which contains the revised regulations on broker of property surety bonds or trust funds, is stayed until
Compliance dates: Brokers, surety providers, and financial institutions must comply with the provisions regarding immediate suspension, financial failure or insolvency, and enforcement authority on
Brokers, surety providers, and financial institutions must comply with the provisions regarding assets readily available and entities eligible to provide trust funds for Form BMC-85 trust fund filings on
Petition submittal date: Petitions for reconsideration of this final rule must be submitted to the FMCSA Administrator no later than
FOR FURTHER INFORMATION CONTACT: Mr.
SUPPLEMENTARY INFORMATION: FMCSA organizes this final rule as follows:
I. Availability of Rulemaking Documents
II. Executive Summary
A. Summary of Major Provisions
B. Costs and Benefits
III. Abbreviations
IV. Legal Basis for the Rulemaking
V. Discussion of Proposed Rulemaking and Comments
A. Proposed Rulemaking
B. Comments and Responses
1. Assets Readily Available
2. Immediate Suspension of
3. Surety or Trust Responsibility in Case of Broker/Freight Forwarder Financial Failure or Insolvency
4. Enforcement Authority
5. Entities Eligible To Provide Trust Funds for Form BMC-85 Trust Fund Filings
6. Proposed Changes to the Regulatory Text
7. Implementation Timeline
8. Out of Scope Comments
VI. Discussion of the Final Rule
A. Assets Readily Available
B. Immediate Suspension of
C. Surety or Trust Responsibility in Case of Broker/Freight Forwarder Financial Failure or Insolvency
D. Enforcement Authority
E. Entities Eligible To Provide Trust Funds for Form BMC-85 Trust Fund Filings
VII. Section-by-Section Analysis
VIII. Severability
IX. Regulatory Analyses
A. E.O. 12866 (Regulatory Planning and Review), E.O. 13563 (Improving Regulation and Regulatory Review), E.O. 14094 (Modernizing Regulatory Review), and DOT Regulatory Policies and Procedures
B. Congressional Review Act
C. Regulatory Flexibility Act (Small Entities)
D. Assistance for Small Entities
E. Unfunded Mandates Reform Act of 1995
F. Paperwork Reduction Act (Collection of Information)
G. E.O. 13132 (Federalism)
H. Privacy
I. E.O. 13175 (Indian Tribal Governments)
J. National Environmental Policy Act of 1969
I. Availability of Rulemaking 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 final rule, then click "Browse Comments." If you do not have access to the internet, you may view the docket online by visiting Dockets Operations at
II. Executive Summary
A. Summary of Major Provisions
This final rule modifies the following five regulatory areas relating to broker and freight forwarder financial responsibility:
Assets Readily Available. In the Moving Ahead for Progress in the 21st Century Act (Pub. L. 112-141, 126 Stat. 405, 822, MAP-21),
Immediate Suspension of
Surety or trust responsibilities in cases of broker/freight forwarder financial failure or insolvency. FMCSA defines financial failure or insolvency as any payment made or other default pursuant to
FOOTNOTE 1
If the broker or freight forwarder subsequently cures the default, and the surety company or financial institution reinstates the bond or trust or the broker or freight forwarder obtains a new bond or trust, FMCSA will lift the suspension notice and update the
As with the immediate suspension provision, FMCSA intends to use the forthcoming URS platform to receive information and carry out its own responsibilities under this provision.
Enforcement Authority. With this rule, FMCSA implements the requirement in MAP-21 for suspension of a surety or trust fund provider's authority in certain circumstances. The Agency will 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 adds monetary penalties and a statutorily mandated suspension in 49 Code of Federal Regulations (CFR) part 386, appendix B, for violations of the new requirements.
Entities Eligible to Provide Trust Funds for BMC-85 Filings. In this rule, FMCSA removes loan and finance companies from the list of providers eligible to serve as BMC-85 trustees, because this type of institution is not subject to the rigorous Federal regulations applicable to chartered depository institutions or to the state regulations applicable to insurance companies. Loan and finance companies will now be prohibited from offering BMC-85 trusts unless they obtain certification to operate as another type of financial institution that remains on the list of eligible providers in
B. Costs and Benefits
Brokers and freight forwarders, surety bond and trust fund providers, and the Federal Government will incur costs for compliance and implementation. The quantified costs of the 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 rule will total
Table 1-Total Cost of the Rule
Undiscounted Discounted
Year Brokers and Financial Federal Total fna Discounted Discounted
freight responsibility govt. at 7% at 3%
forwarders providers
2025 $ 2,500 $ 3,700 $ 706,700 $ 712,900 $ 666,300 $ 692,100
2026 2,700 4,000 526,800 533,500 466,000 502,900
2027 2,900 4,400 526,800 534,100 436,000 488,800
2028 3,200 4,800 526,900 534,900 408,100 475,300
2029 3,500 5,200 527,000 535,700 381,900 462,100
2030 3,800 5,700 527,100 536,600 357,600 449,400
2031 4,200 6,300 527,200 537,700 334,900 437,200
2032 4,600 6,800 527,300 538,700 313,500 425,300
2033 5,000 7,500 527,400 539,900 293,700 413,800
2034 5,500 8,200 527,500 541,200 275,100 402,700
Total 38,000 56,500 5,450,700 5,545,200 3,933,100 4,749,600
Annualized 559,971 556,786
fna 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 rule will result in benefits to motor carriers. FMCSA is aware that some brokers choose to withhold payment to motor carriers for services rendered. Motor carriers can then submit claims to the financial responsibility provider to receive payment. If the financial responsibility provider has received claims against an individual broker that exceed
FOOTNOTE 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."
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 (totaling approximately 429 in 2022) /3/ will experience a drawdown on their surety bond or trust fund within a given year, with average claim amounts of approximately
FOOTNOTE 3 See Table 4 of the Regulatory Impact Analysis (RIA) which is available in the Docket for this rulemaking for further detail. END FOOTNOTE
III. Abbreviations
ANPRM Advance Notice of Proposed Rulemaking
ATA American Trucking Associations
CFR Code of Federal Regulations
DOT
E.O. Executive Order
FDIC
ILC Irrevocable Letters of Credit
MAP-21 The Moving Ahead for Progress in the 21st Century Act
NAICS North American Industry Classification System
NCCDB National Consumer Complaint Database
NPRM Notice of Proposed Rulemaking
SFAA
UMRA The Unfunded Mandates Reform Act of 1995
URS Unified Registration System
U.S.C. United States Code
IV. Legal Basis for the Rulemaking
In 2012,
Title 49 CFR 387.403T(c), concerning freight forwarder surety bonds and trust funds, provides that the requirements applicable to broker of property surety bonds and trust funds in
V. Discussion of Proposed Rulemaking and Comments
A. Proposed Rulemaking
On
B. Comments and Responses
FMCSA solicited comments for a total of 90 days. On
FOOTNOTE 4 The public listening session was recorded and is available at: https://www.youtube.com/watch?v=hgyKepEyoG0. A transcript is available at: https://www.regulations.gov/document/FMCSA-2016-0102-0434. END FOOTNOTE
By
1. Assets Readily Available
In the NPRM, FMCSA proposed a list of prohibited asset types. FMCSA also specified that the ability to liquidate an asset within 7 calendar days of the event that triggers a payment from the trust is necessary for that asset to be considered readily available.
Comments: FMCSA received feedback from private citizens, owner-operators, and trade associations on this proposed provision. The majority of commenters agreed that acceptable assets should be issued by banks insured by the
TIA expressed concern that fraudulent companies might "seek a potential asset that isn't on the list and note that it is 'readily available' due to the fact it isn't included on the Agency's list of non-compliant assets." Similarly, PFA stated that including a list of prohibited assets could encourage financial institutions to create new asset classes in an attempt to circumvent the regulations.
PFA interpreted the proposed provision, in conjunction with other proposed provisions in the rule, as limiting allowable assets to cash and irrevocable letters of credit (ILC). OOIDA suggested that the only sufficient trust/surety funding sources should be cash and an "unconditional
FOOTNOTE 5 Docket No. FMCSA-2016-0102-0178 at p. 2. FMCSA interprets this to mean an ILC. END FOOTNOTE
FMCSA Response: After considering the comments addressing this topic, FMCSA determined that prescribing a list of allowable assets, instead of prohibited assets, would benefit stakeholders by clearly articulating what assets the Agency deems acceptable. FMCSA proposed a list of prohibited assets in an attempt to strike a balance between the needs of brokers--particularly small businesses--and the goal of protecting motor carriers and shippers. However, FMCSA acknowledges that brokers may find it easier to comply with the regulations if they know the specific asset classes FMCSA deems acceptable.
FMCSA has therefore determined that cash, ILCs issued by a Federally insured depository institution, and
2. Immediate Suspension of Broker/Freight Forwarder's Operating Authority
FMCSA proposed suspending a broker/freight forwarder's operating authority when its available financial security falls below
Suggestions To Modify the Required Financial Security Amount
Comments: FMCSA received over 50 comments addressing this provision, including from brokers, owner-operators, and trade associations. Many commenters who identified as owner-operators and motor carriers expressed their full support for FMCSA's proposal to suspend a broker or freight forwarder's operating authority if they fail to meet the financial security requirements. A total of 20 individual commenters stated that the surety amount of
Five commenters, including those who identified as brokers and small business owners, stated that
FMCSA Response: As part of MAP-21,
Timing of When the Available Financial Security Falls Below the Required Minimum
Comments: Many stakeholders commented on FMCSA's proposal regarding when an entity's available financial security will be considered to have fallen below
Avalon and TIA both stated that FMCSA's use of the word "or" in proposed
FOOTNOTE 6 Docket No. FMCSA-2016-0102-0150 at pp. 3-4. END FOOTNOTE
PFA opposed the concept of a drawdown, stating that "[m]aking a payment from the surety bond or trust fund without regard to other possible claims is in direct contradiction to 49 U.S.C. 13906 9(b)(6) [sic] and violates the Fair Claim Practices of several state Departments of Insurance." /7/ PFA largely agreed with the language proposed by Avalon and TIA, with minor changes.
FOOTNOTE 7 Docket No. FMCSA-2016-0102-0146 at p. 2. END FOOTNOTE
FOOTNOTE 8 Docket No. FMCSA-2016-0102-0148 at p. 3. END FOOTNOTE
FMCSA Response: After considering all the comments on this issue, FMCSA has determined that a bond or trust fund should be considered to have fallen below
FMCSA did not include the language requested by Avalon, TIA, and PFA that would consider available financial security to fall below the minimum required amount when the broker or freight forwarder fails to adhere to the terms of its contract with the surety or financial institution, as it could potentially create due process concerns. FMCSA does not have authority to adjudicate such contract disputes, which may occur for reasons having nothing to do with the required financial security.
Notification Processes and Requirements
Comments: The Agency received numerous comments from trade organizations requesting specifics on when and how they will be notified if the status of a broker's financial security changes. OOIDA suggested providing a clearer definition of "adequate notice" and encouraged the Agency to strengthen its final rule by providing details on how the Agency will provide notice that a broker's financial security has fallen below the required amount. An individual commenter asked how the Agency plans to receive notification that a broker's financial security status no longer meets the required financial standards.
FMCSA Response: In response to these comments, FMCSA added provisions to the regulation delineating the process for surety providers or financial institutions to notify FMCSA of changes to a broker's or freight forwarder's financial security status. Such notification must be made in writing, by electronic means, within 2 business days of either a payment from the bond or trust that causes the available financial security to fall below
FMCSA intends that surety providers and financial institutions will use the URS platform, which is currently under development, to provide FMCSA with relevant information. Brokers will be able to submit responses using the same platform.
Timeframe To Respond to a Claim
Comments: An anonymous commenter raised concerns regarding the proposed 7-day timeframe for immediate suspension and suggested allowing adequate time to respond to a claim but did not provide any suggestions. Another commenter suggested 24 hours. OOIDA proposed a timeframe of 5 to 10 calendar days and ATA-MSC suggested a timeframe of 2 weeks. The latter explained this timeline would provide enough time for internal investigations to take place and prevent disruptions from occurring in the supply chain.
Avalon advised that 5 business days would allow enough time for the trust or surety to "request immediate suspension" if the broker fails to respond to a claim. They recommended that suspension upon financial failure be triggered in the event a broker fails to resolve "a specified number of undisputed claims representing a percentage of the security after 30 days." /9/
FOOTNOTE 9 Docket No. FMCSA-2016-0102 at p. 6. END FOOTNOTE
FMCSA Response: In the final rule, FMCSA is adopting a timeframe for brokers and freight forwarders to respond to a claim. After considering the suggestions proposed by the various commenters, FMCSA determined that 7 business days is appropriate. This timeframe provides an adequate interval for a broker or freight forwarder to respond. In response to ATA-MSC's concern that an internal investigation may take up to 10 business days, FMCSA notes that this provision sets the timeframe for a broker or freight forwarder to submit an initial response when notified of a claim. It does not prescribe a timeframe for the surety provider or financial institution to investigate and make a determination on the validity of the claim. However, if the surety provider or financial institution ultimately determines that the claim is valid and will be paid, it must then comply with the 2-business day reporting timeline described above.
Need for Show Cause Remedies
Comments: A commenter on behalf of 13 stakeholders stressed the need to implement show cause remedies in the process leading up to a broker or freight forwarder's operating authority suspension. They contend that documented "due process issues and procedural protections must be met," /10/ allowing the broker or freight forwarder to either remedy or demonstrate reasons for their noncompliance. The commenter also pointed out that this process will provide a degree of fairness and protection to victims of identity theft or fraud, which the commenter identified as a rampant problem in the industry.
FOOTNOTE 10 Docket No. FMCSA-2016-0102-0147 at p. 2. END FOOTNOTE
On the other hand, FMCSA received a request from the
FMCSA Response: FMCSA has strengthened due process protections for brokers in this final rule. After a surety provider or financial institution notifies FMCSA that a broker or freight forwarder's available financial security has fallen below
Additional Requirements Requested
Comments: FMCSA received multiple comments requesting the adoption of additional requirements following the suspension of a broker's operating authority. ATA-MSC expressed its support for FMCSA's proposal, and suggested additional requirements, "such as requiring these entities to take down websites and advertising as well notifying motor carriers and shippers with in-progress transportation services of the change in their authority status, particularly for brokers involved in household goods." /11/
FOOTNOTE 11 Docket No. FMCSA-2016-0102-0136 at p. 5. END FOOTNOTE
An individual owner-operator who experienced an instance of inadequate payment from a broker suggested suspension of brokers for 30 days and decreasing their credit rating. Another commenter suggested imprisoning brokers who fail to pay.
FMCSA Response: FMCSA recognizes the adverse impact on motor carriers when brokers fail to pay for services rendered and appreciates that some motor carriers would like to see more severe sanctions put in place for such brokers. Except for the suspension of operating authority adopted in this rule, these suggested penalties exceed the Agency's statutory authorities.
Inconsistencies or General Concerns With the Suspension Provision
Comments: Many trade organizations pointed to some inconsistencies in the broader scope of the immediate suspension provision and raised concerns that it relies on the broker to self-disclose bankruptcy or insolvency as evidence of financial failure.
Avalon stated that the rulemaking will not prevent brokers from accumulating claims and exceeding their financial security, which will not improve the status quo for drivers and owner-operators. Liberty advised that the proposed procedure will not resolve the broader issue of nonpayment, as it will be challenging to trigger a broker or freight forwarder's financial failure status, which may not result in the immediate suspension of their operating authority. Liberty added that "trust funds will continue to be expended on a "first come, serve served" basis and leave everyone else in the cold." /12/ TIA shared concerns that "the proposed change might be worse than the existing rules in place." /13/
FOOTNOTE 12 Docket No. FMCSA-2016-0102-0148 at p. 3. END FOOTNOTE
FOOTNOTE 13 Docket No. FMCSA-2016-0102-0150 at p. 4. END FOOTNOTE
Additionally, OOIDA inquired about the purpose of this statutory provision "[i]f the broker is not considered insolvent upon evidence that is has stopped paying motor carriers." /14/ SFAA shared that concern "that the broker will continue conducting operations even during the solicitation period, which will result in increased claims and a corresponding reduction in pro rata recovery for all claimants." /15/
FOOTNOTE 14 Docket No. FMCSA-2016-0102-0178 at p. 4. END FOOTNOTE
FOOTNOTE 15 Docket No. FMCSA-2016-0102-0151 at p. 5. END FOOTNOTE
FMCSA Response: FMCSA recognizes that relying only on filings made pursuant to Title 11, United States Code or an equivalent state insolvency proceeding as evidence of financial failure or insolvency could prevent surety companies and financial institutions from reporting in a timely manner when a broker or freight forwarder is accumulating claims. The changes FMCSA made in the final rule to the reporting requirements for immediate suspensions, as discussed above, and to the definition of financial failure or insolvency, discussed below, will ensure that surety providers and financial institutions can initiate the immediate suspension process more quickly once certain conditions are met. This will help reduce the risk that brokers and freight forwarders can continue accumulating claims for an extended period. These changes also ensure that surety providers and financial institutions can continue to utilize the payment provisions of either 49 U.S.C. 13906(b)(2) or (6), as applicable.
Brokers who file bankruptcy proceedings are also covered by the anti-discrimination provisions in 11 U.S.C. 525. Accordingly, FMCSA made changes in the final rule to specify that the immediate suspension procedures do not apply when a broker or freight forwarder has filed a proceeding pursuant to Title 11, United States Code, in addition to changes in the definition of financial failure or insolvency, as discussed below. FMCSA believes these changes remove the potential for conflicts between the Bankruptcy Code and the regulatory requirements.
3. Surety or Trust Responsibility in Case of Financial Failure or Insolvency
In the NPRM, FMCSA proposed to define the terms financial failure and insolvency and publicly advertise, in accordance with 49 U.S.C. 13906(b)(6) and (c)(7), as well as procedures relating to the cancellation of a surety bond or trust as the result of a broker's financial failure or insolvency.
Definition of Financial Failure or Insolvency
Comments: ITSA supported the proposed definitions of financial failure and insolvency and the proposed regulatory text for
Surety and trust providers expressed a need for some flexibility in making determinations about the solvency of brokers they work with. PFA noted that financial failures typically involve a broker disputing claims on invalid or unreasonable grounds, acknowledging claims but not paying them while continuing to aggregate additional claims, or booking many loads and then exiting the market without paying motor carriers. Similarly, SFAA stated, "[o]ften, when a broker's business is failing, the surety will receive a sudden spike in claims against the bond and will not receive any response from the broker." /16/
FOOTNOTE 16 Docket No. FMCSA-2016-0102-0151 at p. 3. END FOOTNOTE
Liberty stated that "BMC-85 Trustees are claims managers--not merely claims payers. We are intermediaries, liaisons, and problem solvers between claimants and brokers." /17/ Liberty believes trustees have expertise necessary to determine whether a broker is in financial failure and/or insolvent.
FOOTNOTE 17 Docket No. FMCSA-2016-0102-0148 at p. 2. END FOOTNOTE
Commenters were also concerned that the use of a bankruptcy proceeding as evidence of financial failure or insolvency would violate the anti-discrimination provisions of 11 U.S.C. 525, which provides that a governmental unit may not, among other actions, deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to a person solely because the person has been a debtor under Title 11 or a bankrupt or debtor under the Bankruptcy Act.
FMCSA Response: FMCSA appreciates commenters expressing detailed perspectives on this issue. After considering the comments, FMCSA has determined that, while it is necessary to establish an objective standard for determining financial failure or insolvency, the proposed definition would limit surety providers' or financial institutions' ability to protect motor carriers from brokers who delay or refuse to initiate formal bankruptcy or insolvency proceedings. Thus, FMCSA has modified the definition of financial failure or insolvency to allow surety providers or financial institutions flexibility to exercise their judgment and expertise in making such a determination. FMCSA also removed the use of a filing pursuant to Title 11, United States Code from the definition.
Under the final rule, surety providers or financial institutions may cite financial failure or insolvency of the broker or freight forwarder as grounds for cancellation of a Form BMC-84 surety bond or BMC-85 trust agreement when the surety provider or financial institution either makes a payment against the bond or trust fund that is not cured in accordance with
Failure To Report Insolvent Brokers
Comments: A commenter inquired what type of action the Agency will take if a trust company refuses to report an insolvent broker or advertise for claims.
FMCSA Response: FMCSA has the authority to seek specific penalties for violations of the relevant statutes and regulations under 13906(b)(7) and (c)(8). While any action FMCSA may take would depend on the specific facts and circumstances involved in a violation, nothing in this rule is intended to, nor would it, limit the scope of FMCSA's enforcement authority.
Cancellation Notice
Comments: OOIDA commented on FMCSA's proposal to publish cancellation notices in the
FMCSA Response:
FOOTNOTE 18
FOOTNOTE 19
FMCSA declines to include links to the sureties' or trustees' web pages, as they are not required to list pending claims on their websites.
Ex Parte Communication Concerning This Provision
Comment: On
FOOTNOTE 20 Docket No. FMCSA-2016-0102-0419. END FOOTNOTE
FMCSA Response: FMCSA placed an ex parte memo /21/ in the docket for this rulemaking to capture this information and updated the registration page to ensure that others are also aware of the situation. The Agency notes that this rulemaking is not enforceable until the compliance dates listed under the DATES section of this final rule.
FOOTNOTE 21 Docket No. FMCSA-2016-0102-0435. END FOOTNOTE
4. Enforcement Authority
In the NPRM, FMCSA proposed to implement MAP-21's provision for suspension of a surety provider's eligibility to make filings with FMCSA by providing a notice of suspension to the surety/trust fund provider followed by 30 calendar days for the surety or trust fund provider to respond before a final decision is issued. FMCSA also proposed to add penalties in 49 CFR part 386, appendix B, for violations of the new requirements.
Comments: FMCSA received approximately 50 comments on the Agency's enforcement authority over surety providers. Many of the comments received were out of scope as they addressed what the commenters perceived as a lack of provisions to combat fraud and implement transparency requirements. Two individual commenters opposed this provision urging that the Agency should not regulate the financial aspect of the trucking industry.
ATA-MSC and TIA agreed with the Agency's proposal and found the provisions reasonable. ITSA also agreed with and supported FMCSA's proposed language but suggested placing it in [Sec.]
FMCSA Response: In response to the comments about regulation of financial aspects of the trucking industry, FMCSA notes that this rulemaking stems from a Congressional mandate to implement certain provisions of MAP-21. FMCSA must, by law, regulate these aspects. In response to the comments about fraud and transparency, this rule aims to reduce fraud by limiting the time brokers can continue to accrue claims while experiencing financial failure or insolvency before their operating authority registration is suspended. These changes adopted in this rule will result in fewer motor carriers accepting loads from brokers who do not intend to pay.
Regarding ITSA's suggestion to alter the placement of the enforcement authority provision in the regulations, FMCSA believes that the proposed language fits within the scope of
Request for More Detail
Comments: OOIDA expressed frustration that bad actors have been able to "register, conduct transactions, and stay in business without fear of any recourse against their criminal activity" /22/ but agreed that these are necessary provisions to implement the MAP-21 requirements. It requested to see a more detailed plan demonstrating how FMCSA plans to take enforcement action.
FOOTNOTE 22 Docket No. FMCSA-2016-0102-0178 at p. 5. END FOOTNOTE
FMCSA Response: FMCSA is dedicated to ensuring the integrity of the trucking sector and refers incidents of criminal conduct to appropriate authorities. Criminal enforcement is handled by the
5. Entities Eligible To Provide Trust Funds for BMC-85 Filings
In the NPRM, FMCSA proposed prohibiting loan and finance companies from serving as BMC-85 trustees. FMCSA received support on this provision from driver and motor carrier trade organizations, which fully agree that loan and finance companies should not serve as BMC-85 trustees.
Assets That Can Be Used as Collateral
Comment: PFA stated that the NPRM did not address the difference between allowable assets that the trustor can use as collateral and the way in which a trust provider can invest cash provided as collateral. In response to the proposed removal of finance lenders from the list of qualified financial institutions in
FOOTNOTE 23 Docket No. FMCSA-2016-0102-0146 at p. 2. END FOOTNOTE
FMCSA Response: FMCSA takes note of PFA's comment that banks will be the only type of financial institution that will be able to profit from offering BMC-85 trust funds and acknowledges that the final rule may result in some providers ceasing to offer this service. However, FMCSA believes this change is necessary because loan and finance companies are not subject to similar levels of oversight as the other entities described in
Concern About Small Businesses
Comments: The Agency received two comments from 1st
FMCSA Response: Consistent with the requirement for brokers and freight forwarders to maintain
Loan and finance companies are not depository institutions and therefore are not regulated by the Federal depository regulators, such as the
FOOTNOTE 24 See, e.g., Introduction to Financial Services: The Regulatory Framework,
While FMCSA recognizes that removing loan and finance companies from the list of eligible BMC-85 providers may cause some of these companies to leave the industry, ensuring that all BMC-85 trust funds are administered by highly regulated institutions is a priority for the Agency and is necessary to carry out the requirements of MAP-21. This rule change will also more closely align FMCSA's regulations with those of other DOT agencies. For instance, in DOT's regulations on aviation proceedings applicable to public charter security and depository agreements, a surety provider must be a bonding or surety company that is listed in Best's Insurance Reports (Fire and Casualty) with a general policyholders' rating of "A" or better and legally authorized to issue bonds of that type in the State in which the charter originates (14 CFR 380.34(c)(6)). A trustee must be either an
In Chapter 3.3.1 of this final rule's RIA, FMCSA outlines the process and anticipated timeline for a loan and finance company to become an
6. Proposed Changes to the Regulatory Text
Comments: The Agency received additional requests from commenters to modify the regulatory text pertaining to
ITSA recommended keeping the language in paragraph (b), which deals with evidence of financial security, as it currently exists or alternately moving it to paragraph (a), which currently concerns the security necessary. ITSA also pointed to a typographical error in the proposed rule mentioning the removal of paragraph (c)(8); it believes the Agency intended to remove paragraph (c)(7).
Avalon and PFA both proposed changes to paragraphs (e) and (f), which would allow surety providers and trustees to initiate the immediate suspension process more quickly for brokers and freight forwarders who are accruing claims.
OOIDA proposed extensive changes to the structure and organization of
* Security--(a)(1); (d);
* Cancellation of Security and Revocation of Registration--(f)(1)(B);
* Public Notice--(f)(3)(A);
* Sureties and Trustees: The financial failure or insolvency of a broker--(g)(5)(a); (g)(5)(b);
* Claim Processing: First review of claim--(h)(3)(A)(i); (h)(3)(A)(ii);
* Claim Processing: Second review of claims--(h)(5)(A); (h)(5)(C); and
* Notice--(h)(6).
FMCSA Response: FMCSA agrees with ITSA that it is important to retain the language previously in paragraph (b) regarding the manner in which brokers and freight forwarders must provide evidence of security and the content of security agreements. In the final rule, FMCSA has moved this language to paragraph (a).
ITSA also accurately identified that FMCSA intended to remove paragraph (c)(7), not paragraph (c)(8). This typographical error has been corrected in the final rule.
FMCSA made several changes to the text of
While FMCSA appreciates the time and effort OOIDA spent in proposing changes to
In addition to the structural changes, OOIDA also proposes to set out in precise detail the procedures surety providers and trustees must follow when processing claims, including the responses required of brokers. As discussed above, the changes FMCSA made to paragraphs (e) and (f) of the final rule are designed to set certain parameters around claim processing, but the Agency does not believe the process needs to be regulated at the level of detail OOIDA suggests. OOIDA also proposed requiring all surety providers and trustees to maintain a public web page for each surety bond or trust fund, which would contain specified types of information, and to notify FMCSA of the correct URL address of the web page and any changes to that address. However, MAP-21 did not require FMCSA to implement this type of requirement, and the Agency believes administering such a provision would be unduly burdensome on sureties, trust fund providers, and Agency personnel. FMCSA therefore declines to make the changes OOIDA suggested.
7. Implementation Timeline
Comments: FMCSA received feedback on the 3-year implementation timeline proposed in the NPRM. ITSA disagreed that the industry needs that much time to comply with the regulatory changes, as brokers covered by a loan or finance company "can easily transition to a surety company or other form of approved financial institution." They proposed that FMCSA consider 3 months as a reasonable timeframe. TIA agreed that a 3-year period would be too long and suggested 12 months instead.
FMCSA Response: FMCSA acknowledges the comments it received regarding the implementation period pertaining to this rule. After careful consideration, the Agency determined that reducing the 3-year implementation period would be beneficial to stakeholders while still providing the industry sufficient time to comply with the financial requirements. The Agency has decided to reduce the implementation period from 3 years to 1 year for the immediate suspension, financial failure or insolvency, and enforcement authority provisions of this rulemaking. FMCSA also reduces the implementation period from 3 years to 2 years for the assets readily available and entities eligible to provide trust funds for Form BMC-85 trust fund filings provisions.
8. Out of Scope Comments
Business Practices
Comments: FMCSA received more than 150 comments concerning issues beyond the scope of the NPRM. Most of these comments concerned common operational procedures or business practices and relationships between brokers and motor carriers.
These commenters stated that brokers often behave in various fraudulent ways and are not currently sufficiently regulated by DOT or FMCSA. In particular, commenters mentioned those who operate under fake/stolen business information, as multiple businesses with different operating authority numbers. Many commenters mentioned broker actions the commenters viewed as predatory and, accordingly, favored FMCSA setting limits on rates brokers could charge. Multiple commenters at the
A common complaint in the public comments was "double-brokering" of loads. This term is commonly used to refer to a situation where a motor carrier accepts a load from a broker and then transfers the load without the shipper's or original broker's knowledge to another motor carrier who actually delivers the load. In many instances, the motor carrier who completes the load does not receive payment for their services, as the original broker pays the motor carrier with whom it has contracted and believes the transaction is complete, but that motor carrier does not pay the second motor carrier with whom it has subcontracted.
FMCSA Response: FMCSA appreciates commenters for bringing these issues to the Agency's awareness and hopes the commenters will stay engaged, including by continuing to inform the Agency of such issues. However, these issues are outside of the scope of this rulemaking, as they do not specifically pertain to the issues presented in the NPRM. FMCSA therefore declines to modify the final rule based upon these comments.
Regarding the accusations of fraud, FMCSA is aware of increasing concerns in this area and is actively examining approaches to address the problems, including potential rule changes in other areas. FMCSA and DOT are also looking at new tools and practices to better enforce existing regulations against companies engaging in fraud. The Agency encourages drivers affected by deceptive business practices or similar concerns to file a complaint against the company involved on the National Consumer Complaint Database (NCCDB) website. /25/
FOOTNOTE 25 The NCCDB is available at https://nccdb.fmcsa.dot.gov/nccdb/home.aspx#. END FOOTNOTE
Other Out of Scope Comments
Comments: Other out of scope comments included many complaints about specific brokers or brokers being foreign-owned and operated. Many individuals commented concerning a planned Agency rulemaking regarding transparency in the broker industry.
FMCSA Response: FMCSA encourages these commenters to submit complaints regarding a specific broker or company to FMCSA via the NCCDB website as detailed earlier. FMCSA requests that commenters interested in the issue of br'oker transparency submit comments to that rulemaking when it is published.
VI. Discussion of the Final Rule
A. Assets Readily Available
As discussed above, FMCSA modified this final rule to provide an explicit list of acceptable asset types, rather than the list of prohibited assets included in the NPRM. This list of acceptable assets will provide clarity to brokers, freight forwarders, surety providers, and financial institutions about the specific assets that meet the criteria set by
Compliance with this provision will be required on
B. Immediate Suspension of
Many comments on this provision requested more detail on the circumstances and process leading up to a broker or freight forwarder's suspension. A broker or freight forwarder's operating authority will be suspended when their available financial security falls below
C. Surety or Trust Responsibilities in Cases of Broker/Freight Forwarder Financial Failure or Insolvency
FMCSA defines the terms financial failure and insolvency as any payment made or other default pursuant to
D. Enforcement Authority
As proposed in the NPRM, FMCSA implements the MAP-21 requirement for suspension of a surety provider's authority and to add penalties in 49 CFR part 386, appendix B, for violations of the new requirements. This final rule includes a new paragraph (g)(24) which specifies the monetary penalty for which a surety company or financial institution found to be in violation of 49 U.S.C. 13906 or
E. Entities Eligible To Provide Trust Funds for Form BMC-85 Trust Fund Filings
As proposed in the NPRM, FMCSA removes the provision allowing loan and finance companies to serve as BMC-85 trustees. Compliance for this provision will be required on
VII. Section-by-Section Analysis
This section includes a summary of the changes to 49 CFR parts 386 and 387. The regulatory changes 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) is added to clearly state the monetary penalty for which a surety company or financial institution found in violation of 49 U.S.C. 13906 or
Sections 387.307 and 387.307T
Due to the delayed compliance date(s) in this final rule, FMCSA moves the existing language in
New
Section 387.307 Property Broker Surety Bond or
In
Paragraph (e) sets out the triggers and procedures for immediate suspension of a broker. The paragraph establishes the role of the surety provider or financial institution, FMCSA, and the broker.
Paragraph (f) sets 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 is defined as any payment made or other default pursuant to
Paragraph (g) sets out procedures concerning suspension of a surety company or financial institution's eligibility 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. are established.
Section 387.307T Property Broker Surety Bond or
This section is moved from existing
VIII. Severability
The purpose of this rule is to implement, based on FMCSA's statutory authorities described in section V (Legal Basis for the Rulemaking), regulatory requirements for the financial security of brokers and freight forwarders. A judicial decision invalidating some of these measures would not necessarily require rejection of the entire rule. While many the provisions of this rule are integrated, and the Agency anticipates the separate provisions will function most effectively operating together, FMCSA nonetheless finds that each major provision of the rule is severable from the others and would operate effectively even in the event some provisions were deemed invalid. For example, if a court vacated FMCSA's decision to remove loan and finance companies from the list of allowable BMC-85 providers, that removal would not change FMCSA's determination regarding assets readily available, nor would it affect the validity of the rule's other provisions, which should be allowed to remain in effect. Likewise, if a court were to set aside FMCSA's definition of financial failure or insolvency, other provisions of the rule could be separately implemented and thus would remain valid.
IX. Regulatory Analyses
A. Executive Order (E.O.) 12866 (Regulatory Planning and Review), E.O. 13563 (Improving Regulation and Regulatory Review), E.O. 14094 (Modernizing Regulatory Review), and DOT Regulatory Policies and Procedures
FMCSA has considered the impact of this final rule under E.O. 12866 (58 FR 51735,
A 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 will incur costs for compliance and implementation. The quantified costs of the final 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 will total
Summary of Estimated Benefits
This final rule will result in benefits to motor carriers resulting from a decrease in the claims against brokers that go unpaid. FMCSA expects that result for several reasons. First, FMCSA will immediately suspend brokers that do not respond following a drawdown on their financial security. Such brokers will no longer be able to accrue liabilities that they do not plan, or lack the ability, to pay. This will be accomplished through the BMC-84/85 Filing Management System FMCSA intends to implement and maintain as part of the larger URS, which is currently under development. Surety bond and trust fund providers will submit claim data and notice of a drawdown on a broker bond or trust fund in the system, provide notice of broker insolvency or financial failure, and provide notice if a broker satisfies all pending claims and is no longer experiencing financial failure or insolvency. Notices of a drawdown or financial failure will automatically alert FMCSA and trigger the system to generate a letter outlining requirements that must be met for brokers to maintain operating authority. Brokers will be able to provide written evidence of a restored financial instrument through the system. Motor carriers will be able to query the system to determine if a broker has active operating authority registration before accepting a load.
As described above, the BMC-84/85 Filing Management System within the URS will efficiently exchange information between motor carriers, brokers, financial responsibility providers, and FMCSA, thereby reducing the information asymmetry concerns associated with broker and motor carrier transactions. However, given a lack of data, FMCSA is unable to quantify benefits resulting from this rule, and instead qualitatively discusses benefits directly related to three provisions in the regulatory impact analysis.
FMCSA cannot directly estimate an impact on safety resulting from this rule. OOIDA /26/ contends that broker non-payment of claims causes smaller motor carriers to defer maintenance on their vehicles or "run harder until they make up the shortfall," both resulting in unsafe driving practices. /27/ 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." With this final rule, motor carriers will have more information to avoid contracting with unscrupulous brokers and will also receive more timely payment for work completed, without use of interpleader proceedings. Both of these outcomes will lead to an increase in safety if motor carriers choose to use these resources to further their safety focus.
FOOTNOTE 26 Docket No. FMCSA-2016-0102-0076. END FOOTNOTE
FOOTNOTE 27 TIA also references potential safety benefits of this rulemaking, available at Docket No. FMCSA-2016-0102-0032. END FOOTNOTE
B. Congressional Review Act
This rule is not a major rule as defined under the Congressional Review Act (5 U.S.C. 801-808)." /28/
FOOTNOTE 28 A major rule means any rule that OMB finds has resulted in or is likely to result in (a) an annual effect on the economy of
C. Regulatory Flexibility Act (Small Entities)
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 (Public Law 104-121, 110 Stat. 857,
Accordingly, FMCSA prepared an Initial Regulatory Flexibility Analysis (IRFA) for the NPRM and a Final Regulatory Flexibility Analysis (FRFA) for the final rule. This rule will affect financial responsibility providers, brokers, and freight forwarders.
FMCSA does not know the asset make-up of brokers, and therefore cannot anticipate based on current asset portfolios how many brokers will be unable to fund the type of assets that will be required in BMC-85 trust funds going forward. FMCSA estimates that a maximum of 17 percent of brokers could be forced out of the market. However, FMCSA anticipates that most, if not all, of the brokers who utilize BMC-85 trust funds will increase their capitalization during the 2-year compliance period such that they will meet the assets readily available requirements.
FMCSA does not have data on the number of loan and finance companies currently serving as BMC-85 trustees. FMCSA has no quantifiable data or information on what decisions these loan and finance companies will make (i.e., remain an eligible entity or exit the market) nor reliable cost data relating to those decisions. Therefore, FMCSA has not determined whether this final rule will have a significant economic impact on a substantial number of small entities.
A FRFA must contain the following:
(1) A statement of the need for, and objectives of, the rule;
(2) A statement of the significant issues raised by the public comments in response to the IRFA, a statement of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments;
(3) The response of the agency to any comments filed by the Chief Counsel for Advocacy of the
(4) A description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available;
(5) A description of the projected reporting, recordkeeping, and other compliance requirements of the 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;
(6) A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected;
(7) For a covered agency, as defined in section 609(d)(2) of the Regulatory Flexibility Act, a description of the steps the agency has taken to minimize any additional cost of credit for small entities.
1. A statement of the need for, and objectives of, the rule.
MAP-21, section 32918, amended 49 U.S.C. 13906 and provided new requirements for the financial security of brokers and freight forwarders.
2. A statement of the significant issues raised by the public comments in response to the IRFA, a statement of the assessment of the agency of such issues, and a statement of any changes made in the proposed rule as a result of such comments.
There were no public comments submitted in response to the IRFA. However, the Agency received approximately 342 unique comments in response to the NPRM. FMCSA received some comments concerning small businesses, specifically regarding the required financial security amount and entities eligible to provide trust funds for BMC-85 Filings. These comments are addressed in Section VI. B. of this final rule.
3. The response of the agency to any comments filed by the chief counsel for advocacy of the SBA in response to the proposed rule, and a detailed statement of any change made to the proposed rule in the final rule as a result of the comments.
The Chief Counsel for Advocacy of the SBA did not file comments in response to the proposed rule.
4. A description of and an estimate of the number of small entities to which the rule will apply or an explanation of why no such estimate is available.
Small entity is defined in 5 U.S.C. 601. Section 601(3) defines a small entity 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), likewise 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. Additionally, Section 601(5) defines small entities as governments of cities, counties, towns, townships, villages, school districts, or special districts with populations less than 50,000.
This final rule will affect financial responsibility providers, brokers, and freight forwarders.
The financial responsibility providers that would be affected by this final rule operate under many different North American Industry Classification System /29/ (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 15 below, the SBA size standard for finance and insurance, ranges from
FOOTNOTE 29 More information about NAICS is available at: http://www.census.gov/naics/ (accessed
Brokers and freight forwarders operate in the transportation sector under the NAICS code 48851. As shown in Table 15, the SBA size standard for freight transportation arrangement is
Table 2-SBA Size Standards forSelected Industries NAICS code NAICS industry description SBA size standard Subsector 522-Credit Intermediation and Related Activities 52211 Commercial Banking$ 850 . 52229 All Other Nondepository Credit Intermediation$ 47.0 . Subsector 523-Securities, Commodity Contracts, and Other Financial Investments and Related Activities 52315 Investment Banking and Securities Intermediation$ 47.0 . 52316 Commodity Contracts Intermediation$ 47.0 . 52321 Securities and Commodity Exchanges$ 47.0 . 52391 Miscellaneous Intermediation$ 47.0 . Subsector 524-Insurance Carriers and Related Activities 524126 Direct Property and Casualty Insurance Carriers 1,500 employees. 524127 Direct Title Insurance Carriers$ 47.0 . 524128Other Direct Insurance (except life, health, and medical) Carriers$ 47.0 . 52413 Reinsurance Carriers$ 47.0 . 52421 Insurance Agencies and Brokerages$ 15.0 . 524292Third Party Administration of Insurance and Pension Funds$ 45.5 . Subsector 488-Support Activities for Transportation 48851 Freight Transportation Arrangement$ 20.0 .
FMCSA examined data from the 2017 Economic Census, the most recent Census for which data was available, to determine the percentage of firms that have revenue at or below SBA's thresholds within each of the NAICS industries. /30/ Boundaries for the revenue categories used in the Economic Census do not precisely 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.
FOOTNOTE 30
The commercial banking industry group has a revenue size standard of
For Other Nondepository Credit Intermediation, the
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
The Commodity Contracts Dealing industry group focuses on acting as agents between buyers and sellers of securities and commodities (52313). The SBA size standard for this industry group is
The Commodity Contracts Brokerage industry group focuses on providing securities and commodity exchange services (52314). The SBA size standard for this industry group is
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
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
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 1,500 employees. The 1,500 employees SBA threshold falls within the highest employment category of 250 employees or more. The low bound estimate assumes all firms in this category are above the SBA threshold and thus can be considered small. The high bound estimate assumes all firms in this category are below the SBA threshold and can be considered small. The estimated percentages of direct property and casualty insurance carrier firms with employment less than the SBA threshold is between 92 percent and 100 percent. FMCSA has assumed that the percent of direct property and casualty insurers that are small will be closer to 92 percent and is using that figure, as the agency believes there exist some non-small direct property and casualty insurance carriers and thus 92 percent is a more plausible assumption than estimating that the industry consists of 100 percent small firms.
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
The Other Direct Insurance Carriers industry group primarily engages in initially underwriting insurance policies (524128). The SBA size standard for this industry group is
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
The Insurance Agencies and Brokerages industry group primarily engages in selling insurance (52421). The SBA size standard for this industry group is
The Freight Transportation Arrangement industry group primarily engages in arranging the transportation of freight between shippers and motor carriers (48851). The SBA size standard for this industry group is
Table 3-Estimates of Numbers of Small Entities
NAICS Description Total Number % of all
code number of of small firms
firms entities
52211 Commercial Banking 4,804 4,804 100
52229 All Other Nondepository Credit Intermediation 10,411 5,255 50
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 Exchanges 13 9 69
52391 Miscellaneous Intermediation 6,912 6,715 97
524126 Direct Property and Casualty Insurance Carriers 2,079 1,912 92
524127 Direct Title Insurance Carriers 662 438 66
524128 Other Direct Insurance (except life, health, and medical) Carriers 285 166 58
52413 Reinsurance Carriers 129 77 60
52421 Insurance Agencies and Brokerages 106,260 105,056 99
524292 Third Party Administration of Insurance and Pension Funds 2,498 2,306 92
48851 Freight Transportation Arrangement 13,252 12,889 97
5. A description of the proposed reporting, recordkeeping, and other compliance requirements of the rule, including an estimate of the classes of small entities which will be subject to requirements and the type of professional skills necessary for preparation of the report or record.
Small financial responsibility providers and brokers will 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.
Though this rulemaking does not modify existing, or create any new, paperwork impacts within the 3-year timeframe, FMCSA acknowledges that due to the impacts of compliance with this rulemaking there will likely be changes to the information collection requirements associated with this rulemaking at a future date due to the requirements set forth in this rulemaking.
6. A description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each of the other significant alternatives to the rule considered by the agency which affect the impact of small entities was rejected.
FMCSA made its best effort to draft a rule that would minimize any significant economic impact on small entities.
After reviewing comments to the NPRM, FMCSA understands that brokers may find it easier to comply with the regulations if they know the specific asset classes FMCSA deems acceptable. FMCSA, therefore, determined that cash, ILCs issued by institutions insured by the
Most commenters and agency stakeholders support prohibiting loan and finance companies from serving as financial institutions for the broker market. These entities are not regulated to the same extent as other financial institutions at the state or Federal level. For example, they may not undergo safety and soundness examinations that score institutions in various areas, such as capital adequacy or asset quality. This decision is intended to ensure that a small broker's or freight forwarder's surety bond or trust fund assets remain stable, secure, and readily available.
In Chapter 3.3.1 of the final rule's RIA, FMCSA has outlined the process and anticipated timeline for a loan and finance company to become an
FMCSA has no data on the number of loan and finance companies currently serving as BMC-85 trustees but understands that the top five BMC-85 trustees currently serve about 93 percent of the BMC-85 market, while 97 percent of the BMC-85 trustees serve five or fewer brokers. Based on this data, it is safe to assume that providing financial responsibility to brokers is not the main line of business for most trust fund providers. FMCSA also has no quantifiable data or information on what decisions these loan and finance companies will make (i.e., remain an eligible entity or exit the market) nor reliable cost data relating to those decisions.
FMCSA proposed a 3-year compliance date in the NPRM to allow ample time for small entities to meet the requirements of the rule. The comments received from small entities and stakeholders indicate that a three-year compliance date is unnecessarily long. After careful consideration of comments to the NPRM, the Agency determined that reducing the 3-year implementation period to 2 years will be beneficial to stakeholders while still allowing sufficient time for small businesses to comply with the financial requirements, considering their available resources.
The compliance date for the immediate suspension, financial failure or insolvency, and enforcement authority provisions is one year because the Agency believes that these provisions are the most urgently needed to protect motor carriers, shippers, and other parties in the transportation industry from brokers and freight forwarders who are financially unable or unwilling to meet their obligations and from surety providers or financial institutions that do not properly report such brokers to FMCSA. The compliance date for the other provisions (assets readily available and entities eligible to serve as trust providers) is 2 years because the Agency believes and that small businesses will need more time to come into compliance with them. The Agency believes this compliance date is the best way to minimize the economic impact of the rule's implementation on small entities.
FMCSA does not know the asset make-up of brokers, and therefore cannot anticipate how many brokers will be unable to fund the type of assets that we will require in BMC-85 trust funds given their current portfolio. FMCSA estimates that a maximum of 17 percent of brokers could be forced out of the market. FMCSA anticipates that most, if not all, of the brokers who utilize the BMC-85 trust funds will increase their capitalization during the 2-year compliance period. FMCSA believes the 2-year compliance period will allow most brokers to meet the assets readily available requirements.
In the event that a broker does not meet the assets readily available requirement, FMCSA anticipates that at least some of the freight brokerage business will then be shifted, or transferred, to other brokers that maintain their operating authority. FMCSA does not anticipate a substantial disruption to the freight brokerage market resulting from this final rule.
FMCSA has already implemented
7. 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.
C. Assistance for Small Entities
In accordance with section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 857), FMCSA wants to assist small entities in understanding this final rule so they can better evaluate its effects on themselves and participate in the rulemaking initiative. If the final rule will 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.
Small businesses may send comments on the actions of Federal employees who enforce or otherwise determine compliance with Federal regulations to the
E. 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
F. Paperwork Reduction Act
This final rule contains no new information collection requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
Though this rulemaking does not modify existing, or create any new, paperwork impacts within the 3-year timeframe, FMCSA acknowledges that due to the impacts of compliance with this rulemaking there will likely be changes to the information collection requirements associated with this rulemaking at a future date due to the requirements set forth in this rulemaking. When those potential changes are identified, FMCSA will publish a notice in the
G. 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 will 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.
H. Privacy
The Consolidated Appropriations Act, 2005, /31/ requires the Agency to assess the privacy impact of a regulation that will affect the privacy of individuals. This rule would not require the collection of personally identifiable information (PII). The supporting Privacy Impact Analysis (PIA), available for review in the docket, gives a full and complete explanation of FMCSA practices for protecting PII in general and specifically in relation to this final rule.
FOOTNOTE 31 Public Law 108-447, 118 Stat. 2809, 3268, note following 5 U.S.C. 552a (
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.
The E-Government Act of 2002, /32/ requires Federal agencies to conduct a PIA for new or substantially changed technology that collects, maintains, or disseminates information in an identifiable form. No new or substantially changed technology will collect, maintain, or disseminate information as a result of this rule. Accordingly, FMCSA has not conducted a PIA.
FOOTNOTE 32 Public Law 107-347, sec. 208, 116 Stat. 2899, 2921 (
In addition, the Agency submitted a Privacy Threshold Assessment (PTA) 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.
I. 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.
J. National Environmental Policy Act of 1969
FMCSA analyzed this 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 paragraphs (6.k) and (6.q) cover broker activities and implementation of record preservation. The 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 amends 49 CFR parts 386 and 387 as follows:
PART 386--RULES OF PRACTICE FOR FMCSA PROCEEDINGS
1. The authority citation continues to read as follows:
Authority:49 U.S.C. 113; chapters 5, 51, 131-141, 145-149, 311, 313, and 315; Sec. 204, Pub. L. 104-88, 109 Stat. 803, 941 (49 U.S.C. 701 note); Sec. 32402, Pub. L. 112-141, 126 Stat. 405, 795 (49 U.S.C. 31306a); Sec. 701 Pub. L. 114-74, 129 Stat. 599 (28 U.S.C. 2461 note); 49 CFR 1.81 and 1.87.
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) Beginning on
(i) Is liable to
(ii) Will be ineligible to provide broker financial security for three years.
*****
PART 387--MINIMUM LEVELS OF FINANCIAL RESPONSIBILITY FOR MOTOR CARRIERS
3. The authority citation continues to read as follows:
Authority:49 U.S.C. 13101, 13301, 13906, 13908, 14701, 31138, and 31139; sec. 204(a), Pub. L. 104-88, 109 Stat. 803, 941; and 49 CFR 1.87.
4. Redesignate SEC 387.307 as
5. Add a new
This section is effective
(a) Security. A broker must have a surety bond or trust fund of
(b) Acceptable assets. Beginning on
(c) Financial institution. When used in this section and in forms prescribed under this section, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof, shall mean each agent, agency, branch or office within
(1) An insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h));
(2) A commercial bank or trust company;
(3) An agency or branch of a foreign bank in
(4) An insured depository institution (as defined in section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2));
(5) A thrift institution (savings bank, building and loan association, credit union, industrial bank or other);
(6) An insurance company;
(7) Until
(8) A person subject to supervision by any State or Federal bank supervisory authority.
(d) Forms and Procedures. (1) Forms for broker surety bonds and trust agreements. Form BMC-84 broker surety bond will be filed with FMCSA for the full security limits under paragraph (a) of this section; or Form BMC-85 broker trust fund agreement will be filed with FMCSA for the full security limits under paragraph (a) of this section.
(2) Broker surety bonds and trust fund agreements in effect continuously. Surety bonds and trust fund agreements shall specify that coverage thereunder will remain in effect continuously until terminated as herein provided in paragraphs (d)(2)(i) and (d)(2)(ii) of this section.
(i) Cancellation notice. The surety bond and the trust fund agreement may be cancelled only upon 30 days' written notice to FMCSA, on prescribed Form BMC-36, by the principal or surety for the surety bond, and on prescribed Form BMC-85, by the trustor/broker or trustee for the trust fund agreement. The notice period commences upon the actual receipt of the notice at FMCSA's
(ii) Termination by replacement. Broker surety bonds or trust fund agreements which have been accepted by FMCSA under these rules may be replaced by other surety bonds or trust fund agreements, and the liability of the retiring surety or trustee under such surety bond or trust fund agreements shall be considered as having terminated as of the effective date of the replacement surety bond or trust fund agreement. However, such termination shall not affect the liability of the surety or the trustee hereunder for the payment of any damages arising as the result of contracts, agreements or arrangements made by the broker for the supplying of transportation prior to the date such termination becomes effective.
(e) Immediate suspension. (1) A surety company issuing a Form BMC-84 or a financial institution issuing a Form BMC-85 must notify FMCSA in writing, by electronic means, when the surety company or financial institution:
(i) Makes a payment, with the consent of the broker, from the surety bond or trust fund for a claim by a shipper or motor carrier that causes the surety bond or trust fund to fall below
(ii) Makes a payment in any case in which the broker does not respond within 7 business days to address the validity of the claim, and the surety provider or financial institution determines that the claim is valid, and the payment causes the surety bond or trust fund to fall below
(iii) Makes a payment due to a judgment against the broker that causes the surety bond or trust fund to fall below
(iv) Determines that the broker is experiencing financial failure or insolvency and that the surety company or financial institution will be required to pay one or more claims pursuant to 49 U.S.C. 13906(b)(6) in an amount that will cause the surety bond or trust fund to fall below
(A) It receives one or more claims that, if paid, would reduce the balance of the trust fund or surety bond below the required minimum;
(B) It has notified the broker of such claims and provided 7 business days for the broker to respond to the determination; and
(C) Either the broker fails to respond within the time period provided in paragraph (e)(1)(D)(ii) of this section, or provides a response and the surety company or financial institution nevertheless determines that the claim is legitimate and that the surety company or financial institution expects to make one or more payments on the claim from the bond or trust fund.
(2) Paragraph (e)(1) of this section does not apply when a broker has filed to initiate a proceeding pursuant to Title 11 of the United States Code.
(3) The notification to FMCSA must include the broker's MC number or USDOT number, a description of the reason for the notification, and either:
(i) Evidence of the date a payment was made under paragraphs (e)(1)(i) through (iii) of this section and amount of such payment, or
(ii) A list of currently pending claims, amounts, and evidence that the surety company or financial institution complied with the notification requirements in paragraph (e)(1)(D) of this section.
(4) The notification to FMCSA must be made within 2 business days of a payment or determination.
(5) Upon notification by the surety company or financial institution in accordance with paragraphs (e)(1) through (4) of this section, FMCSA will provide written notice to the broker that its operating authority registration issued pursuant to part 365 of this chapter will be suspended within 7 business days of the date of the notice unless the broker provides written evidence to FMCSA that the notification was sent in error, the surety bond or trust fund has been restored to the
(6) If the broker fails to respond to the notice within 7 business days, FMCSA will enter a suspension of the broker's authority and provide written notice to the broker that the suspension is in effect. A broker whose authority has been suspended may request FMCSA to lift the suspension by providing written evidence that the notification was sent in error; the surety bond or trust fund has been restored to the
(f) Financial failure or insolvency of the broker. (1) For purposes of this section, a financial failure or insolvency of a broker is defined as any payment made or other default pursuant to
(2) For purposes of this provision, a filing related to the broker pursuant to Title 11 of the United States Code does not constitute financial failure or insolvency.
(3) If a surety company or financial institution makes a determination as described in paragraph (f)(1) of this section, 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.
(4) Upon notification by the surety company or financial institution, FMCSA will provide written notice of the cancellation in the
(5) If a surety company or financial institution notifies FMCSA of its determination pursuant to paragraph (e)(1)(iv) that a broker is experiencing financial failure or insolvency and the broker subsequently satisfies all pending claims that would have reduced the surety bond or trust fund below
(g) Suspension of surety company or financial institution. (1) If a surety company or financial institution violates the requirements of this section or 49 U.S.C. 13906(b) or (c), FMCSA shall suspend the authorization of such surety company or financial institution to have its instruments filed as evidence of financial responsibility pursuant to
(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.
6. Amend newly redesignated
a. Adding introductory text; and
b. Revising paragraph (d)(2)(i).
The addition and revision read as follows:
This section will remain in effect until
*****
(d) * * *
(2) * * *
(i) Cancellation notice. The surety bond and the trust fund agreement may be cancelled only upon 30 days' written notice to the FMCSA, on prescribed Form BMC 36, by the principal or surety for the surety bond, and on prescribed Form BMC 85, by the trustor/broker or trustee for the trust fund agreement.
*****
Issued under authority delegated in 49 CFR 1.87.
Administrator.
[FR Doc. 2023-25312 Filed 11-15-23;
BILLING CODE 4910-EX-P
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