[Federal Register Volume 88, Number 220 (Thursday, November 16, 2023)]
[Rules and Regulations]
[Pages 78656-78674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25312]
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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: Final rule.
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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 January 16, 2024.
Expiration dates: Section 387.307T, which contains the current
regulations on broker of property surety bonds or trust funds, expires
as of January 16, 2025.
Section 387.307, which contains the revised regulations on broker
of property surety bonds or trust funds, is stayed until January 16,
2025.
Compliance dates: Brokers, surety providers, and financial
institutions must comply with the provisions regarding immediate
suspension, financial failure or insolvency, and enforcement authority
on January 16, 2025.
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
January 16, 2026.
Petition submittal date: Petitions for reconsideration of this
final rule must be submitted to the FMCSA Administrator no later than
December 18, 2023.
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, (202) 385-2367, [email protected]. If you have questions on
viewing or submitting material to the docket, call Dockets Operations
at (202) 366-9826.
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 Broker/Freight Forwarder Operating
Authority
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 Broker/Freight Forwarder Operating
Authority
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 U.S. Department of Transportation, 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.
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:
[[Page 78657]]
Assets Readily Available. In the Moving Ahead for Progress in the
21st Century Act (Pub. L. 112-141, 126 Stat. 405, 822, MAP-21),
Congress mandated that broker/freight forwarder trust funds consist of
``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), (c)(1)(D)). The Agency adopts a definition of assets
readily available that both implements the statutory requirement and is
reasonable for the Agency to administer. The final rule sets out a list
of the acceptable asset types a BMC-85 trust may contain. FMCSA has
determined that these asset types are readily available because they
are stable in value and can be easily liquidated within 7 calendar days
of an event that triggers a payment from the trust.
Immediate Suspension of Broker/Freight Forwarder Operating
Authority. Pursuant to this final rule, when a broker or freight
forwarder's available financial security falls below $75,000, FMCSA may
suspend its operating authority registration. A broker's or freight
forwarder's ``available financial security'' may fall below $75,000
because a broker or freight forwarder consents to a drawdown, or if a
broker or freight forwarder does not respond to a valid notice of claim
from a surety or trust provider, or if a claim against the broker or
freight forwarder is converted to a judgment. If the available
financial security falls below $75,000 and the broker or freight
forwarder does not replenish funds within 7 calendar days after notice
from FMCSA, the Agency will issue a notification of suspension of
operating authority to the broker or freight forwarder. The Agency
intends to use its forthcoming Unified Registration System (URS)
platform to receive information from surety providers, trustees,
brokers, and freight forwarders and to administer FMCSA's
responsibilities regarding immediate suspension of operating authority
registration.
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
Sec. 387.307(e)(1), the regulatory provision that addresses the
situations under which a broker or freight forwarder's operating
authority may be immediately suspended, which the broker or freight
forwarder does not cure in accordance with Sec. 387.307(e)(5) or (6).
This rule requires that if the surety/trustee becomes aware that a
broker or freight forwarder is experiencing financial failure or
insolvency, it must notify FMCSA and initiate cancelation of the
financial responsibility. FMCSA will then publish a notice of failure
in the FMCSA Register.\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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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 FMCSA Register.
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 Sec.
387.307(c).
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 $5.5 million on an undiscounted basis, $3.9 million
discounted at 7 percent, and $4.7 million discounted at 3 percent (all
in 2022 dollars). The annualized cost of the rule will be $559,971
discounted at 7 percent and $556,786 discounted at 3 percent. Ninety-
eight percent of the costs will be incurred by the Federal Government.
Table 1--Total Cost of the Rule
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Undiscounted Discounted
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Year Brokers and Financial
freight responsibility Federal Total \a\ Discounted Discounted
forwarders providers govt. at 7% at 3%
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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
[[Page 78658]]
2034.......................... 5,500 8,200 527,500 541,200 275,100 402,700
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Total..................... 38,000 56,500 5,450,700 5,545,200 3,933,100 4,749,600
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Annualized................ ............ ................ .......... .......... 559,971 556,786
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\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 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 $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 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 (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 $1,900 per claim submitted. Of these brokers,
18 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 rule. It is
FMCSA's intent that the provisions in this rule will mitigate the need
to initiate interpleader proceedings and alleviate the concern caused
by broker non-payment of claims.
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\3\ See Table 4 of the Regulatory Impact Analysis (RIA) which is
available in the Docket for this rulemaking for further detail.
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III. Abbreviations
ANPRM Advance Notice of Proposed Rulemaking
ATA American Trucking Associations
ATA-MSC ATA Moving and Storage Conference
CFR Code of Federal Regulations
DOT Department of Transportation
E.O. Executive Order
FDIC Federal Deposit Insurance Corporation
FMCSA Federal Motor Carrier Safety Administration
FR Federal Register
ILC Irrevocable Letters of Credit
ITSA International Trade Surety Association
MAP-21 The Moving Ahead for Progress in the 21st Century Act
NAICS North American Industry Classification System
NCCDB National Consumer Complaint Database
NCUA National Credit Union Association
NPRM Notice of Proposed Rulemaking
OMB Office of Management and Budget
OOIDA Owner-Operator Independent Drivers Association
PFA Pacific Financial Association, Inc. and PFA Transportation
Insurance & Surety Services
SBA Small Business Administration
SFAA The Surety & Fidelity Association of America
TIA Transportation Intermediaries Association
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, 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)).
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 Sec. 387.307 also apply to
the surety bond or trust fund required of freight forwarders.
Therefore, any time this rule and this preamble refer to brokers, the
same requirements are also applicable to freight forwarders.
V. Discussion of Proposed Rulemaking and Comments
A. Proposed Rulemaking
On January 5, 2023, FMCSA published an NPRM titled ``Broker and
Freight Forwarder Financial Responsibility'' in the Federal Register
(Docket No. FMCSA-2016-0102, 88 FR 830). The NPRM proposed amending the
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.
B. Comments and Responses
FMCSA solicited comments for a total of 90 days. On March 8, 2023,
FMCSA announced that it would be holding a listening session on this
rulemaking and other broker related matters in conjunction with the
Mid-America Trucking Show in Louisville, KY on March 31, 2023, and the
Agency extended the public comment period until April 6, 2023 (88 FR
14439).\4\
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\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.
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[[Page 78659]]
By April 6, the deadline for submitting responses to the NPRM,
FMCSA received 340 unique comments, including Air & Expedited Motor
Carriers Association (AEMCA), Airforwarders Association (AfA), the
American Trucking Associations Moving and Storage Conference (ATA-MSC),
Auto Haulers Association of America (AHAA), American Home Furnishings
Alliance (AHFA), Apex Capital Corp, Avalon Risk Management Insurance
Agency LLC (Avalon), Alliance for the Safe, Efficient and Competitive
Truck Transportation (ASECTT), International Trade Surety Association
(ITSA), Liberty National Financial Corporation (Liberty), National
Association of Small Trucking Companies (NASTC), National Owner
Operators Association, Owner-Operator Independent Drivers Association
(OOIDA), Pacific Financial Association, Inc. and PFA Transportation
Insurance & Surety Services (PFA), Pinnacle Financial Partners/Pinnacle
Bank, Sompo International, Specialized Furniture Carriers, The Surety &
Fidelity Association of America (SFAA), The Expedite Association of
North America (TEANA), Transportation Intermediaries Association (TIA),
Transportation & Logistics Council (T&LC), Transportation & Loss
Prevention and Security Association (TLP&SA), approximately 30 private
and family-owned businesses, and approximately 300 individuals.
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 Federal Deposit Insurance Corporation (FDIC)
and have the capacity to be liquidated within 7 calendar days. However,
most commenters disagreed with FMCSA's decision to publish only a list
of prohibited assets. For example, the ATA-MSC, ITSA, TIA, and OOIDA
each suggested that the Agency instead provide a list of acceptable
assets, including those that would be acceptable under trusts. ATA-MSC
stated that this would eliminate any ambiguity and set a standard for
the Agency's expectations.
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 FDIC-insured letter of credit.'' \5\
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\5\ Docket No. FMCSA-2016-0102-0178 at p. 2. FMCSA interprets
this to mean an ILC.
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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 Treasury bonds will
constitute the acceptable categories of assets readily available. FMCSA
considers this to be the broadest range of assets that meet the
criteria set by Congress in MAP-21. Other asset classes such as real
estate are not sufficiently liquid, while stocks, non-Treasury bonds,
and other securities involve significant risk to the investor, and
therefore none of these asset classes can be considered readily
available. FMCSA also shares commenters' concerns about the potential
use of assets that are not included in a list of prohibited assets, but
which would nevertheless not meet the statutory mandate. FMCSA believes
the listed asset classes will not require the Agency or trust fund
providers to expend resources on continual monitoring and valuation to
ensure the trusts remain compliant.
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 $75,000 and
the broker or freight forwarder fails to replenish funds within 7
calendar days. This process would be triggered when there is a drawdown
on the broker or freight forwarder's surety bond or trust fund, meaning
when (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, and 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. A surety would be permitted to
pay a claim either with the consent of the broker, when the broker
fails to respond to a notice of claim within 14 calendar days, or when
there is a judgment against the broker or freight forwarder.
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 $75,000 is too
low and should be raised to meet inflation rates. The Agency received
suggestions to raise the required amount to a minimum of $95,000, while
others suggested $100,000, $250,000, or an amount reflecting the broker
or freight forwarder's quarterly revenue. The commenters contend that
such an increase would prevent fraudulent brokers while providing
drivers and owner-operators assurance that they will be compensated for
their services. These individuals also expressed the view that a higher
surety minimum would improve the chances of receiving a higher
percentage of pro rata payment when such situations arise. In their
second comment, OOIDA mentioned that the MAP-21 legislation had
previously raised the bond amount, which did not resolve the problem of
unscrupulous brokers stealing
[[Page 78660]]
transportation services that exceeded the bond minimum.
Five commenters, including those who identified as brokers and
small business owners, stated that $75,000 is too high and should not
be implemented for small businesses. These commenters stated this
minimum will make it challenging for them to start a brokerage company
or to remain in business. One commenter proposed reducing the required
amount to $5,000.
FMCSA Response: As part of MAP-21, Congress raised the minimum
required financial responsibility amount from $25,000 to $75,000 for
household goods brokers and from $10,000 to $75,000 for all other
brokers of property. The statute states that brokers ``shall provide
financial security of $75,000 for purposes of this subsection,
regardless of the number of branch offices or sales agents of the
broker'' (49 U.S.C. 13906(b)(3)). In the NPRM, FMCSA did not propose
changing the financial responsibility requirements, and therefore views
these comments as outside the scope of the proposed rule.
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 $75,000. ITSA supported the triggering event being an
actual drawdown of funds which results in a security balance lower than
$75,000. Many other commenters expressed concerns about FMCSA's
proposal or opposed it entirely.
Avalon and TIA both stated that FMCSA's use of the word ``or'' in
proposed Sec. 387.307(e) suggested that sureties ``are free to make an
independent determination on valid claims and make payments
irrespective of the current regulations which require the claimants to
obtain a judgment.'' \6\ Both commenters proposed adding language to
the regulation that permits immediate suspension when a broker or
freight forwarder fails to adhere to the terms of its contract with the
surety or financial institution.
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\6\ Docket No. FMCSA-2016-0102-0150 at pp. 3-4.
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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. Liberty National
Financial Corporation (Liberty) also opposed limiting the definition to
an actual drawdown, stating, ``[f]rom a practical standpoint, if a
broker creates an `inevitable' (versus `actual') drawdown against its
BMC-85 trust fund, that broker should just as well be cancelled . . .
because, when legitimate claims are coming in, there is no practical
distinction between a broker who cannot pay, and a broker who will not
pay, and a broker who gives the run-around, and the broker who goes
incommunicado. . . .'' \8\
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\7\ Docket No. FMCSA-2016-0102-0146 at p. 2.
\8\ Docket No. FMCSA-2016-0102-0148 at p. 3.
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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 $75,000 when either an actual drawdown occurs, or
when the surety provider or financial institution receives legitimate
claims that have not been adequately addressed by the broker and will
inevitably result in the bond or trust fund falling below that amount.
Expanding the criteria in this manner will allay concerns from surety
providers and financial institutions about their ability to quickly
notify FMCSA of brokers warranting suspension while still adhering to
the 60-day period for public advertisement and subsequent 30-day period
for paying claims specified in 49 U.S.C. 13906(b)(6). This is because
surety providers and financial institutions will not be required to
actually make a payment from the bond or trust fund before notifying
FMCSA that the assets have fallen below $75,000, and will thus be able
to continue aggregating claims throughout the statutory claims period.
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 $75,000 or a
determination by the surety provider or financial institution that such
payment will be inevitable once the 60-day period for submission of
claims has elapsed.
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\
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\9\ Docket No. FMCSA-2016-0102 at p. 6.
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FMCSA Response: In the final rule, FMCSA is adopting a timeframe
for brokers and freight forwarders to
[[Page 78661]]
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.
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\10\ Docket No. FMCSA-2016-0102-0147 at p. 2.
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On the other hand, FMCSA received a request from the Surety &
Fidelity Association of America (SFAA) to refine the language by
clarifying that claimants would only be entitled to payment until the
investigation period has elapsed.
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 $75,000, FMCSA will send
written notification to the broker or freight forwarder and allow 7
business days for response. If the broker or freight forwarder presents
evidence that the notification from the surety provider or financial
institution was sent to FMCSA in error, the available financial
security has been restored to the required minimum amount, or the
pending claims have been satisfied without the use of surety bond or
trust fund assets, FMCSA may find that immediate suspension is not
warranted. FMCSA will also allow brokers or freight forwarders to cure
a default after a suspension has been implemented.
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\
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\11\ Docket No. FMCSA-2016-0102-0136 at p. 5.
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The National Owner Operators Association, which represents 28,000
owner-operators, stated that brokers should be fined, barred, and
sanctioned to prevent bad actors from operating.
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\
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\12\ Docket No. FMCSA-2016-0102-0148 at p. 3.
\13\ Docket No. FMCSA-2016-0102-0150 at p. 4.
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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\
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\14\ Docket No. FMCSA-2016-0102-0178 at p. 4.
\15\ Docket No. FMCSA-2016-0102-0151 at p. 5.
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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
[[Page 78662]]
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 Sec.
387.307(f). However, many other commenters opposed FMCSA's proposal to
define financial failure or insolvency as bankruptcy or state
insolvency proceeding. These commenters, who included Avalon, TIA, PFA,
Liberty, and SFAA, stated that FMCSA's proposal would likely worsen the
problem, as a significant period often elapses between the time a
broker ceases paying motor carriers and the time a bankruptcy or
insolvency proceeding commences. Further, in some instances a broker
will simply move on and never make such a filing, and the surety or
financial institution would be prevented from initiating the Form BMC-
84 or BMC-85 cancellation process despite knowing that the broker is
not paying motor carriers.
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\
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\16\ Docket No. FMCSA-2016-0102-0151 at p. 3.
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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.
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\17\ Docket No. FMCSA-2016-0102-0148 at p. 2.
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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 Sec. 387.307(e)(5) or (6) or expects
to make a payment after aggregating multiple claims. FMCSA intends to
receive this information via the URS.
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 Register. It noted that the FMCSA
Register is not ``searchable or inherently accessible'' and requested
that such notice be published on FMCSA's SAFER web page and the
``Licensing and Insurance'' web page of the broker bond in question.
OOIDA additionally suggested that the Agency change its Licensing and
Insurance web page to provide a link to a page on the surety's or
trustee's website showing how many pending claims exist on a given
bond.
FMCSA Response: The FMCSA Register \18\ provides to the public a
daily summary of motor carrier applications for operating authority
registration, as well as decisions and notices the Agency has issued
regarding the status of entities operating authority. FMCSA
acknowledges the concerns raised regarding the importance of
cancellation notices being easily accessible to the public and, in
response, has placed a link to the FMCSA Register in a more prominent
location on the Agency's website \19\ to make it more accessible.
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\18\ The FMCSA Register is accessible at https://www.fmcsa.dot.gov/registration/daily-fmcsa-registration-decisions-letters-certificates-permits-and-licenses.
\19\ The FMCSA Register is available at https://www.fmcsa.dot.gov/registration/daily-fmcsa-registration-decisions-letters-certificates-permits-and-licenses.
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FMCSA declines to include links to the sureties' or trustees' web
pages, as they are not required to list pending claims on their
websites. The FMCSA Register web page is a reliable resource which is
updated daily to provide the public information related to operating
authority registration.
Ex Parte Communication Concerning This Provision
Comment: On May 12, 2023 an individual informed FMCSA that the
hypothetical situation described in their original comment \20\ to the
docket had in fact occurred.
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\20\ Docket No. FMCSA-2016-0102-0419.
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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.
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\21\ Docket No. FMCSA-2016-0102-0435.
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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
[[Page 78663]]
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. Sec. 387.317 and
387.415, which concern FMCSA's authority to refuse to accept or to
revoke surety bonds, insurance certificates, self-insurer
qualifications, or other securities or agreements, instead of in Sec.
387.307. However, if FMCSA were to keep the language in Sec. 387.307,
ITSA recommended ensuring that the citation to section 13906 of the
United States Code include both subsections (b) and (c), which apply to
brokers and freight forwarders, respectively.
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 Sec. 387.307 and
therefore declines to make changes to other sections of part 387. FMCSA
has revised the citation to section 13906 of the United States Code to
include both subsections (b) and (c).
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.
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\22\ Docket No. FMCSA-2016-0102-0178 at p. 5.
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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 Office of Inspector
General and the Department of Justice.
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 Sec. 387.307(c), PFA stated that
``the only entity that will practically be able to generate a profit
from issuing BMC-85s will be banks,'' \23\ as insurance companies
stopped taking collateral on this type of surety many years ago. Thus,
any investment the trust provider made using the collateral would be
overseen by State and Federal regulators.
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\23\ Docket No. FMCSA-2016-0102-0146 at p. 2.
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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 Sec. 387.307(c) and such oversight is necessary
to ensure the stability of the BMC-85 trust instrument.
Concern About Small Businesses
Comments: The Agency received two comments from 1st Security
Financial Corporation on FMCSA's proposed rule expressing its
disagreement with disqualifying loan and finance companies as
acceptable entities. The company explained this will force many small
loan companies out of business and increase premiums on BMC-84 forms.
1st Security Financial Corporation added that the company abides by the
MAP-21 agreement instructions by vetting brokers and publicly
advertising insolvent ones, and it urged the Agency to reconsider the
provision. PFA also agreed that the provision would eliminate many
small businesses and reduce ``the experience of claims management in
the industry'' and the number of claims that will be paid.
FMCSA Response: Consistent with the requirement for brokers and
freight forwarders to maintain $75,000 in available assets, FMCSA
determined that the definition of a financial institution should
include only highly regulated depository institutions, insurance
companies, or equivalent entities. This decision is intended to ensure
that a broker's or freight forwarder's surety bond or trust fund assets
remain stable, secure, and readily available.
Loan and finance companies are not depository institutions and
therefore are not regulated by the Federal depository regulators, such
as the Federal Reserve, Office of the Comptroller of the Currency, the
FDIC, or the National Credit Union Administration (NCUA), or an
equivalent State regulator.\24\ They are also generally not subject to
a level of State regulation comparable to insurance companies. As FMCSA
is now limiting the allowable assets held in BMC-85 trusts to cash,
ILCs issued by Federally insured depository institutions, and Treasury
bonds, loan and finance companies are unlikely to be able to comply
with these requirements. FMCSA believes the risks involved in allowing
companies that are not part of highly regulated industries to
administer BMC-85 trusts are incompatible with the requirement that the
trust fund consist of 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)).
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\24\ See, e.g., Introduction to Financial Services: The
Regulatory Framework, Congressional Research Service, January 5,
2023, available at https://crsreports.congress.gov/product/pdf/IF/IF11065.
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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
[[Page 78664]]
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 FDIC-
insured national bank complying with the provisions of 12 CFR 7.7010(a)
or a State bank complying with applicable State laws that grant
authority to issue such agreements (14 CFR 380.34(c)(7)).
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 FDIC-insured depository institution in order to continue
serving as a BMC-85 trustee. Based on that timeline, FMCSA has
concluded that the 2-year implementation period for this rule is
reasonable for loan and finance companies to achieve compliance if they
wish to do so. Due to a lack of data on the cost of this process and
the number of loan and finance companies currently serving as BMC-85
trustees, the Agency cannot determine how many loan and finance
companies will choose to meet the additional requirements to remain
eligible entities or, alternatively, will exit the market. Nothing in
this rule prohibits loan and finance companies that wish to continue
offering services to brokers and freight forwarders from taking the
necessary steps to become an eligible financial institution.
6. Proposed Changes to the Regulatory Text
Comments: The Agency received additional requests from commenters
to modify the regulatory text pertaining to Sec. 387.307(a), (b), (e),
and (f). Additionally, PFA suggested adding a paragraph to Sec.
387.307 outlining penalties for suspended brokers.
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 Sec. 387.307, including:
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 Sec. 387.307(e) and (f)
in response to comments received. FMCSA believes the text of the final
rule both addresses commenters' concerns and implements the desire of
Congress to expeditiously suspend brokers who are accruing claims
against their surety bonds or trust funds.
While FMCSA appreciates the time and effort OOIDA spent in
proposing changes to Sec. 387.307, the Agency believes the structure
and content of the regulatory changes implemented by this final rule is
clear, well-organized, and fully addresses the intended scope of the
rulemaking. The manner in which OOIDA has suggested restructuring this
section goes beyond the changes FMCSA proposed in the NPRM, and FMCSA
prefers to retain the current structure of the regulation to the extent
possible.
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
[[Page 78665]]
broker actions the commenters viewed as predatory and, accordingly,
favored FMCSA setting limits on rates brokers could charge. Multiple
commenters at the March 2023 listening session mentioned charge backs
and claims from brokers after loads were delivered.
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\
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\25\ The NCCDB is available at https://nccdb.fmcsa.dot.gov/nccdb/home.aspx#.
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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 Congress in MAP-21, as they are both stable and able to
be made liquid within 7 calendar days. The final rule will also prevent
the use of new asset types that would not be specifically included on a
list of prohibited assets but would not meet the criteria FMCSA used to
determine whether an asset type is allowable. In this rule, acceptable
assets to be included in a trust fund are limited to cash, irrevocable
letters of credit issued by Federally insured depository institutions,
and Treasury bonds.
Compliance with this provision will be required on January 16,
2026.
B. Immediate Suspension of Broker/Freight Forwarder Operating Authority
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 $75,000
and the broker or freight forwarder fails to replenish funds within 7
calendar days. This final rule outlines information about the triggers
and roles of surety or financial institutions and FMCSA, including how
surety providers issuing a BMC-84 form or financial institutions
issuing a BMC-85 Form must notify FMCSA when a broker's financial
responsibility falls below the required minimum and is not replenished
in a timely manner. Compliance for this provision will be required on
January 16, 2025.
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 Sec. 387.307(e)(1) not cured
in accordance with Sec. 387.307(e)(5) or (6) but does not include, in
and of itself, a broker filing for bankruptcy protection pursuant to
Title 11 of the United States Code. This final rule outlines the
procedures and responsibilities for a surety company or financial
institution and for FMCSA once the company or financial institution has
become aware that a broker or freight forwarder has experienced
financial failure or insolvency. Compliance with this provision will be
required on January 16, 2025.
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 Sec. 387.307 will be
liable, as well as the mandatory 3-year ineligibility period for
providing broker financial security. This final rule does not remove
any of the authority that FMCSA or other Federal entities already have
in place to enforce compliance from brokers, sureties, and financial
institutions. Compliance for this provision will be required on January
16, 2025.
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 January 16, 2026.
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 Sec.
387.307 may be liable.
Sections 387.307 and 387.307T
Due to the delayed compliance date(s) in this final rule, FMCSA
moves the existing language in Sec. 387.307 to Sec. 387.307T. This
temporary section will expire January 16, 2025. FMCSA also corrects a
typographical error in the existing text of the section now designated
as Sec. 387.307(d)(2)(i)T.
[[Page 78666]]
New Sec. 387.307 modifies the existing language as follows and is
suspended until January 16, 2025.
Section 387.307 Property Broker Surety Bond or Trust Fund
In Sec. 387.307(b), FMCSA provides a list of acceptable assets for
BMC-85 trust funds. Existing paragraph (c)(7) is removed and existing
paragraph (c)(8) would be renumbered as paragraph (c)(7). New
paragraphs (e), (f), and (g) are added.
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
Sec. 387.307(e)(1) not cured in accordance with Sec. 387.307(e)(5) or
(6).
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 Trust Fund
This section is moved from existing Sec. 387.307. A new
introductory paragraph is inserted to reflect the expiration date of
the temporary section. No other changes are made to this section. This
temporary section will expire January 16, 2025.
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, Oct. 4, 1993), Regulatory Planning and Review, E.O. 13563
(76 FR 3821, Jan. 21, 2011), Improving Regulation and Regulatory
Review, and E.O. 14094 (88 FR 21879, Apr. 11, 2023), Modernizing
Regulatory Review. The Office of Information and Regulatory Affairs
within the Office of Management and Budget (OMB) determined that this
final rulemaking is not a significant regulatory action under section
3(f) of E.O. 12866, as supplemented by E.O. 13563 and E.O. 14094, and
does not require an assessment of potential costs and benefits under
section 6(a)(3) of that order. Accordingly, OMB has not reviewed it
under that E.O.
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 $5.5 million on an
undiscounted basis, $3.9 million discounted at 7 percent, and $4.7
million discounted at 3 percent (all in 2022 dollars). The annualized
cost of the rule will be $559,971 discounted at 7 percent and $556,786
at 3 percent. Ninety-eight percent of the costs will be incurred by the
Federal Government.
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
[[Page 78667]]
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.
---------------------------------------------------------------------------
\26\ Docket No. FMCSA-2016-0102-0076.
\27\ TIA also references potential safety benefits of this
rulemaking, available at Docket No. FMCSA-2016-0102-0032.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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
$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 (5 U.S.C. 802(4)).
---------------------------------------------------------------------------
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,
Mar. 29, 1996) and the Small Business Jobs Act of 2010 (Public Law 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.
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 Small Business Administration (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;
(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. 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.
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.
[[Page 78668]]
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 $15 million in revenue per year for insurance agencies and
brokerages, to $859 million in assets per year for commercial banking.
---------------------------------------------------------------------------
\29\ More information about NAICS is available at: http://www.census.gov/naics/ (accessed June 29, 2022).
---------------------------------------------------------------------------
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 $20.0 million in revenue.
Table 2--SBA Size Standards for Selected Industries
[in millions of 2023$]
------------------------------------------------------------------------
NAICS industry
NAICS code description SBA size standard
------------------------------------------------------------------------
Subsector 522--Credit Intermediation and Related Activities
------------------------------------------------------------------------
52211................... Commercial Banking.. $850.
52229................... All Other $47.0.
Nondepository
Credit
Intermediation.
------------------------------------------------------------------------
Subsector 523--Securities, Commodity Contracts, and Other Financial
Investments and Related Activities
------------------------------------------------------------------------
52315................... Investment Banking $47.0.
and Securities
Intermediation.
52316................... Commodity Contracts $47.0.
Intermediation.
52321................... Securities and $47.0.
Commodity Exchanges.
52391................... Miscellaneous $47.0.
Intermediation.
------------------------------------------------------------------------
Subsector 524--Insurance Carriers and Related Activities
------------------------------------------------------------------------
524126.................. Direct Property and 1,500 employees.
Casualty Insurance
Carriers.
524127.................. Direct Title $47.0.
Insurance Carriers.
524128.................. Other Direct $47.0.
Insurance (except
life, health, and
medical) Carriers.
52413................... Reinsurance Carriers $47.0.
52421................... Insurance Agencies $15.0.
and Brokerages.
524292.................. Third Party $45.5.
Administration of
Insurance and
Pension Funds.
------------------------------------------------------------------------
Subsector 488--Support Activities for Transportation
------------------------------------------------------------------------
48851................... Freight $20.0.
Transportation
Arrangement.
------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\30\ 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 $850 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 $47.0 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 $47.0 million. The
$47.0 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. Note that the SBA size standards published on
March 17, 2023, use the 2022 NAICS
[[Page 78669]]
codes. A key difference from the 2017 NAICS is that Investment Banking
and Securities Dealing (52311) and Securities Brokerage (52312) have
been combined into a single industry, Investment Banking and Securities
Intermediation (52315). Although these two industries are now combined
within NAICS and the SBA size standards, we do not wish to capture
Investment Banking businesses in the number of affected entities. The
estimates in Table 3 exclude these entities, as was the case in the
NPRM RIA.
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 $47.0
million. The $47.0 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 $47.0
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. Note that in the 2022 NAICS, Commodities Contract
Dealing (52313) and Commodities Contracts Brokerages (52314) were
combined into one industry--Commodity Contracts Intermediation (52316).
Both industries previously had identical size standards. FMCSA made the
assumption that in the new combined size standard, both industries
still maintained identical size standards with each other.
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 $47.0
million. The $47.0 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 4 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 $47.0
million. The $47.0 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 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 $47.0 million. The
$47.0 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 $47.0 million. The $47.0
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 $47.0 million. The $47.0 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, therefore 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 $15 million. The $15 million SBA threshold falls
between two Economic Census revenue categories, $10 million and $25
million. The percentages of insurance agencies and brokerages with
revenue less than these amounts were 99 percent and 100 percent,
respectively. Because the SBA threshold is closer to the lower of these
two boundaries, FMCSA has assumed that the percent of insurance
agencies and brokerages that are small will be
[[Page 78670]]
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 $45.5 million. The $45.5 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
motor carriers (48851). The SBA size standard for this industry group
is $20.0 million. The $20.0 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 higher of these two boundaries, FMCSA has assumed that
the percent of firms that are small will be closer to 97 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 may be
affected by this rule. FMCSA notes that there are approximately 36,000
financial responsibility providers, 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 of
NAICS code Description number of small % of all
firms 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 1,912 92
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 106,260 105,056 99
Brokerages.
524292.................................. Third Party Administration of 2,498 2,306 92
Insurance and Pension Funds.
48851................................... Freight Transportation 13,252 12,889 97
Arrangement.
----------------------------------------------------------------------------------------------------------------
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 FDIC
or NCUA, and Treasury bonds will constitute the acceptable categories
of assets readily available. No other asset types, including but not
limited to real estate, stocks, bonds, and other securities, will be
considered acceptable. The list of acceptable assets provides the
broadest range of assets that meet the criteria set by Congress in MAP-
21 while also providing more clarity to small businesses than the
proposed list of prohibited assets in the NPRM did.
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 FDIC-insured depository institution in order to continue
serving as a BMC-85 trustee. FMCSA has learned through this knowledge
and public comments that the 2-year implementation period is reasonable
for loan and finance companies to achieve compliance if they wish to do
so.
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
[[Page 78671]]
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 Congress's directive to set the
minimum financial security required of $75,000 and is not altering the
amount in this final rule. FMCSA is not aware of any further
significant alternatives that would meet the intent of our statutory
requirements.
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 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.
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 $192 million (which is the
value equivalent of $100 million in 1995, adjusted for inflation to
2022 levels) or more in any 1 year. Though this final rule 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 rule
elsewhere in this preamble.
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 Federal Register soliciting comment on
those changes.
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
[[Page 78672]]
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.
---------------------------------------------------------------------------
\31\ Public Law 108-447, 118 Stat. 2809, 3268, note following 5
U.S.C. 552a (Dec. 4, 2014).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\32\ Public Law 107-347, sec. 208, 116 Stat. 2899, 2921 (Dec.
17, 2002).
---------------------------------------------------------------------------
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
0
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.
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) Beginning on January 16, 2025, a surety company or financial
institution for a broker or freight forwarder pursuant to Sec. Sec.
387.307 or 387.403T that violates subsection (b) or (c) of Title 49 of
the United States Code, Section 13906 or Sec. 387.307:--
(i) Is liable to the United States for a penalty of $12,882 for
each violation; and
(ii) Will be ineligible to provide broker financial security for
three years.
* * * * *
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,
and 31139; sec. 204(a), Pub. L. 104-88, 109 Stat. 803, 941; and 49
CFR 1.87.
0
4. Redesignate Sec. 387.307 as Sec. 387.307T.
0
5. Add a new Sec. 387.307, to read as follows:
Sec. 387.307 Property broker surety bond or trust fund.
This section is effective January 16, 2025.
(a) Security. A broker must have a surety bond or trust fund of
$75,000 in effect. FMCSA will not register a broker until a surety bond
or trust fund for the full limits of liability prescribed herein is in
effect. The broker registration shall remain in effect only as long as
a surety bond or trust fund remains in effect and shall ensure the
financial responsibility of the broker. Evidence of a surety bond must
be filed using FMCSA's prescribed Form BMC-84. Evidence of a trust fund
with a financial institution must be filed using FMCSA's prescribed
Form BMC-85. The surety bond or the trust fund shall ensure the
financial responsibility of the broker by providing for payments to
shippers or motor carriers if the broker fails to carry out its
contracts, agreements, or arrangements for the supplying of
transportation by authorized motor carriers.
(b) Acceptable assets. Beginning on January 16, 2026, trust funds
under this section must contain assets aggregating to $75,000 that can
be liquidated to cash within 7 calendar days. As of this date,
acceptable assets included in any trust fund filed under this section
are limited to cash, irrevocable letters of credit issued by a
federally insured depository institution, and Treasury bonds.
(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 the United States of any person,
as defined by the ICC Termination Act, doing business in one or more of
the capacities:
(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 the United States;
(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 January 16, 2026, a loan or finance company; or
[[Page 78673]]
(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 Washington, DC office.
(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 $75,000;
(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 $75,000;
(iii) Makes a payment due to a judgment against the broker that
causes the surety bond or trust fund to fall below $75,000; or
(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 $75,000. The surety company or financial institution may make
this determination when:
(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 $75,000 amount required by this section, or the pending
claims have been satisfied without the use of surety bond or trust fund
assets.
(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
$75,000 amount required by this section; or the pending claims have
been satisfied without the use of surety bond or trust fund assets.
FMCSA will consider such evidence and provide written notice to the
broker of its determination.
(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 Sec.
387.307(e)(1) not cured in accordance with Sec. 387.307(e)(5) or (6).
(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 FMCSA Register on its public website. The surety or financial
institution must 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.
(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 $75,000, the surety company or
financial institution must immediately notify FMCSA that the broker is
no longer experiencing financial failure or insolvency. Upon receiving
evidence from the broker that the surety company or financial
institution has terminated
[[Page 78674]]
the cancellation process and reinstituted the bond or trust, or that
the broker has obtained a new bond or trust from another eligible
surety company or financial institution, FMCSA will promptly provide
written notice in the FMCSA Register on its public website that the
financial failure or insolvency has been cured.
(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 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.
0
6. Amend newly redesignated Sec. 387.307T by:
0
a. Adding introductory text; and
0
b. Revising paragraph (d)(2)(i).
The addition and revision read as follows:
Sec. 387.307T Property broker surety bond or trust fund.
This section will remain in effect until January 16, 2025.
* * * * *
(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.
Robin Hutcheson,
Administrator.
[FR Doc. 2023-25312 Filed 11-15-23; 8:45 am]
BILLING CODE 4910-EX-P