On October 2, 2024, the FDIC published in the Federal Register (89 FR 80135) a document proposing requirements to strengthen IDI recordkeeping for custodial deposit accounts with transactional features. The proposed rule stated that the comment period would close on December 2, 2024. The FDIC has received requests to extend the comment period. After reviewing the requests, the agency finds it appropriate to grant the requests and extend the comment period by an additional 45 days. An extension of the comment period will provide additional opportunity for the public to prepare comments to address the matters raised by the proposed rule. Therefore, the FDIC is extending the comment period for the recordkeeping-related proposed rule from December 2, 2024, to January 16, 2025.

I. Background and Statutory Authority

Section 106(a) of the Consumer Product Safety Improvement Act of 2008 (CPSIA) made ASTM International's (ASTM) voluntary standard for toys, ASTM F963-07, Standard Consumer Safety Specification for Toy Safety (except sections 4.2 and Annex 4), a mandatory safety standard for toys beginning 180 days after the enactment date of the CPSIA. 15 U.S.C. 2056b(a). The CPSIA states that ASTM F963 shall be considered a consumer product safety standard issued by the Commission under section 9 of the Consumer Product Safety Act (CPSA; 15 U.S.C. 2058). Since 2009, CPSC has enforced ASTM F963 as a mandatory standard for toys. 1 2 In 2017, the Commission codified the mandatory toy standard in 16 CFR part 1250, Safety Standard Mandating ASTM F963 for Toys, and incorporated by reference the newly revised ASTM standard at that time, ASTM F963-16. 82 FR 8989 (Feb. 2, 2017). Most recently, on January 18, 2024, the Commission updated part 1250 to incorporate by reference a 2023 revision, ASTM F963-23. 89 FR 3344.

ASTM F963-23 and 16 CFR part 1250 contain requirements for a category of toys known as “aquatic toys.” Section 3.1.4 of ASTM F963-23 defines an aquatic toy as an “an article, whether inflatable or not, intended to bear the mass of a child and used as an instrument of play in shallow water. This does not include bath toys, beach balls, and United States Coast Guard-approved life saving devices.” 16 CFR part 1250.

Section 5.4 of ASTM F963-23 (which is an element of the mandatory standard pursuant to CPSIA section 106 and 16 CFR part 1250) contains labeling requirements for “aquatic toys,” which include neck floats. The ASTM requirements are intended to communicate to the consumer that an aquatic toy is not a lifesaving device and to warn against leaving a child unattended while using the flotation device. However, as discussed in section IV of this preamble, ASTM F963-23 does not establish adequate requirements specific to neck floats because it does not include any performance requirements for these toys. Incident data, described in section III of this preamble, demonstrate that children have suffered drowning injuries and deaths associated with the use of neck floats. Accordingly, as described in section IV of this preamble, neck floats that comply with the labeling requirements in ASTM F963-23 still pose safety hazards.

This notice of proposed rulemaking (NPR) under section 106 of the CPSIA proposes additional requirements in part 1250 to establish a mandatory standard for neck floats which includes performance requirements and improved warning labels. CPSC proposes to define a “neck float” as “an article, whether inflatable or not, that encircles the neck, supports the weight of the child by being secured around the neck (such as by fastening, tightening, or other methods), and is used as an instrument of play in water environments including sinks, baths, paddling pools, and swimming pools, and is intended for use by children up to and including 4 years of age.” Further, this NPR proposes revising the title of part 1250 from “Safety Standard Mandating ASTM F963 for Toys” to “Safety Standards for Toys,” to reflect the inclusion of additional proposed requirements that are not included in the existing requirements in ASTM F963. 3 4

The Commission is authorized to issue this NPR pursuant to both sections 106(c) and (d) of the CPSIA, 15 U.S.C. 2056b(c) and (d). Section 106(c) requires the Commission to periodically review and revise its mandatory toy safety standards to ensure that such standards provide the highest level of safety for toys that is feasible. Section 106(d) further requires the Commission to examine and assess the effectiveness of its mandatory toy safety standards in protecting children from safety hazards, and then to promulgate consumer product safety standards that are more stringent than existing the existing standards if the Commission determines that more stringent standards would further reduce the risk of injury associated with such toys. Consistent with the consultation requirement in section 106(d)(1) of the CPSIA, staff has worked with the ASTM F15.22 subcommittee task group since 2009 to update the toy standard. In addition, since August 2021, CPSC staff has been corresponding with the relevant ASTM Subcommittee and task group to discuss hazards associated with neck floats, including by sharing incident data associated with neck floats as well as staff's recommendation to develop performance requirements to address the hazards identified in the incident data.

Building on staff's continued collaboration with ASTM and in consideration of the incident data, the Commission is issuing this NPR to address four identified hazard patterns associated with neck floats that are not adequately addressed by the current mandatory standard provision addressing aquatic toys. Specifically, the Commission proposes to address the following known hazards: (1) children slipping through the product due to deflation or underinflation; (2) children slipping through the product for reasons other than deflation or underinflation; (3) children slipping through the product due to a restraint system failure; and (4) children submerging in water without slipping through the product. Each of these hazard patterns presents a risk of drowning. The Commission proposes adding performance requirements to part 1250 to address these risks. The NPR also proposes revising labeling requirements for neck floats under part 1250, including mandating warnings on products and instructional literature. Lastly, the Commission is proposing a stockpiling prohibition under part 1250 for neck floats pursuant to section 9(g)(2) of the CPSA. 15 U.S.C. 2058(9)(g)(2).

This NPR provides an overview of staff's assessment and analysis, and it includes the Commission's basis for issuing the proposed rule. For the reasons explained here, the Commission preliminarily determines that the proposed neck float requirements comply with section 106 of the CPSIA because they are more stringent than the current requirements in ASTM F963-23, would further reduce the risk of injury associated with neck floats and would achieve the highest level of safety that is feasible for such products. The Commission seeks comments on these issues.

Neck floats are aquatic toys that are typically ring-shaped tubes with discontinuous ends that wrap around a child's neck. This placement is intended to allow the child's head to float above the water while supporting their body. As is the case with other aquatic toys, 5 this design is intended to allow the child to float and play in water when a child is incapable of floating on their own.

Neck floats are available as both inflatable and non-inflatable products. Inflatable variants rely on air to provide buoyancy and are generally packaged and distributed while deflated. Caregivers must inflate the neck float prior to their initial use and are generally advised to check and re-inflate the neck float prior to subsequent uses as well. Inflatable neck floats have not typically been sold with an air pump and are generally intended to be inflated by mouth. In contrast, an inherently buoyant neck float likely does not require any additional efforts from the caregiver to ensure that it floats.

Market research indicates that inflatable neck floats are primarily composed of plastic sheeting, typically polyvinyl chloride (PVC) plastic, held together through a process known as PVC welding. This manufacturing process fuses the plastic sheeting together by applying heat that melts the individual sheets (Foreman, 2024). The restraint systems of these neck floats also appear to be joined to the product using PVC welding. Non-inflatable or inherently buoyant neck floats are generally composed of two components, a buoyant internal ring made of open- or closed-cell foam that provides the neck float's shape and flotation, and a fabric cover that encases the foam, typically secured with a zipper, where the restraint systems are stitched into the fabric cover.

Neck floats are advertised for use by infants and toddlers based on minimum/maximum weight and suggested age ranges to identify appropriate product sizes. Most retailers advertise the products for children 0 to 6 months for small sizes, 6 to 18 months for medium sizes, and 2 to 5 years for large sizes. The products generally are marketed for use in bathtubs and pools with direct parental supervision. Retail prices for neck float products intended for children typically range from $10 to $60 depending on material type and art design, with inherently buoyant products being more expensive than inflatable products.

Section 3.1.92 of ASTM F963-23 defines a “toy” as “any object designed, manufactured, or marketed as a plaything for children under 14 years of age.” Section 3.1.4 ASTM F963-23 defines an “aquatic toy” as “an article, whether inflatable or not, intended to bear the mass of a child and used as an instrument of play in shallow water. This does not include bath toys, beach balls, and United States Coast Guard-approved life saving devices.” Neck floats are subject to the mandatory toy standard as an aquatic toy because they are instruments of play that are designed to allow a child to play in water, including shallow water. In this NPR's proposed rule, the Commission defines a “neck float” as “an article, whether inflatable or not, that encircles the neck, supports the weight of the child by being secured around the neck (such as by fastening, tightening, or other methods), is used as an instrument of play in water environments including sinks, baths, paddling pools and swimming pools, and is intended for use by children up to and including 4 years of age.”

Neck floats include: (1) inflatable neck floats; (2) inherently buoyant (non-inflatable) neck floats; and (3) neck floats that use a combination of inflatable and inherently buoyant components. All other products that are not neck floats, under the proposed definition of “neck float” in § 1250.5(b), are outside the scope of this rule. Life-saving flotation devices regulated by the Coast Guard, including those that attach to the neck of a user, are also outside the scope of this rule.

The incidents and hazard patterns associated with neck floats are based on CPSC's Consumer Product Safety Risk Management System (CPSRMS). CPSRMS includes data primarily from three groups of sources: incident reports, death certificates, and in-depth follow-up investigation reports (IDIs). A large portion of CPSRMS consists of incident reports from consumer complaints, media reports, medical examiner or coroner reports, retailer or manufacturer reports (incident reports received from a retailer or manufacturer involving a product they sell or make), safety advocacy groups, law firms, and federal, state, or local authorities, among others. It also contains death certificates that CPSC purchases from all 50 states, based on selected external cause of death codes (ICD-10). The third major component of CPSRMS is the collection of in-depth follow-up investigation reports. The CPSRMS incidents identified for neck floats occurred from January 1, 2019, through January 25, 2024; however, the National Electronic Injury Surveillance System (NEISS) database contained no incident reports during that time period referencing neck floats.

From January 2019 through January 2024, staff identified 115 incidents in CPSRMS associated with the use of neck floats. Two of these incidents resulted in a fatality, two incidents led to hospitalization, five incidents led to emergency department (ED) treatment, and one incident led to care by a medical professional. The remaining 105 incidents identified in CPSRMS noted home care, possible but uncertain medical treatment, or the level of care was not reported. In many of the non-fatal incidents, drowning appears to have been averted only due to quick action by a caregiver to rescue the infant. Of the reported incidents that indicate a child's age, children's ages range from 17 days to 12 months old. Where specified, most incidents occurred in home bathtubs, though some reports indicated use in pools.

Based on staff's assessment of the incident data reported in CPSRMS and publicly available consumer-uploaded pictures and videos of the product in use, the Commission determines that neck floats pose a risk of drowning that can result in severe injury or death because of slipping through a neck float or being submerged in the water while using a neck float.

Drowning is a multiphase process of pathophysiological changes ( e.g., asphyxia, electrolyte imbalance, blood volume changes, alterations in respiration) that results in death if not interrupted. In most drowning incidents, consciousness is lost after approximately two minutes, and irreversible brain damage occurs within four to six minutes. Survival without neurological impairment after five minutes is highly unlikely. Rapid initiation of CPR, which helps increase ventilation and oxygen delivery to the brain, will increase the chance for survival and/or optimal medical outcomes (Fields, 1992), such as in CPSC's IDI 230317CCC3554. Victims who survive anoxic episodes, such as in IDI 210114HCC1250, may need prolonged specialized care, including occupational and physical therapy, and can face lifelong disabilities ( e.g., learning, language, and memory) that impact their life and those who care for them. Victims who cannot be resuscitated at the scene, are resuscitated with weak breathing and heart rhythm, or are transported in critical condition, will most likely suffer severe neurological impairment that may lead to organ failure and death as described in IDIs 200915HFE0001 and 190711CCC2487. Prolonged submersion in water for more than five to ten minutes usually leads to poorer prognosis or a fatal drowning.

During the drowning process, a victim experiences respiratory distress impairment because of submersion or immersion in liquid in the victim's airway (Van Beeck et al., 2005). The drowning process begins either when the child's mouth and/or nose goes below the surface of the water (submersion) or when water splashes over the face (immersion). In most of the incidents, neck floats posed a risk of drowning because of a child's head slipping through the product with submersion of the mouth and nose. Seventy-seven incidents reported submersion of a child's airway (nose and/or mouth) in water either full (76 incidents) or partial (one incident), after slipping through the product. Additionally, 87 incidents reported a child's head slipping through the neck hole of the product. Three incidents report turning, rotating, or flipping in the product, leading to the submersion of the nose and mouth. Because infants generally cannot self-rescue, every slip through or submersion incident has the potential to be a drowning, resulting in injury or death, if caregivers do not intervene to quickly pull the infant from the water.

When water enters the airway of the drowning victim, the victim will attempt to spit out, cough up as a reflex response, or swallow the water, often inhaling more water involuntarily (Szpilman et al., 2012; Orlowski et al, 1989; Grmec et al., 2009). Incident reports describe choking, coughing, water ingestion, vomiting, and spitting up water. The risk of injury is dependent on the duration of submersion and amount of water that enters the lungs, as well as the immediacy of rescue and resuscitation efforts. Submersion durations were reported ranging from immediate rescue, where caregivers immediately pulled the child out of the water before the victim suffered any apparent injuries, to several minutes where the caregiver was not nearby or in the same room as the child. Water aspiration to the lungs and water ingestion can happen with very brief submersions. If the child is not rescued, the aspiration of water continues.

When large amounts of fluid are aspirated into the lungs, there is drastic mechanical impairment of gaseous exchange and lung function when the aspirated water destroys the pulmonary surfactant and disrupts the alveolar-capillary membranes. This injury to the lung leads to pulmonary edema, decreased lung compliance, and decreased exchange of oxygen and carbon dioxide. Incidents in which a victim is minimally symptomatic typically resolve without sustaining serious injuries or requiring continued medical treatment, but swallowing or aspirating significant amounts of water can require medical attention or observation, especially for very young infants because of the risk of lung injury, hyponatremia, 6 hypokalemia, 7 or other types of electrolyte imbalance.

In four incidents, caregivers performed medical treatment at home (IDIs 220714CCC1021, 230629CAA1660, 210826CCC3606, 220714CCC3164). In two of those four incidents, caregivers intervened to resuscitate an infant that was not breathing after being pulled from the water (one report of CPR, IDI 220714CCC1021, and one report of back thumps, I2360082A). In nine incidents, caregivers sought medical attention by going to an emergency department (IDIs 230720CCC1766, 210826CCC1826, 210901CCC3625, and reports Y227C309G and Y2170991A), calling 911 (IDI 210910CCC1030), calling a nurse/medical helpline (IDIs 230317CCC3555 and 210901CCC1904), or by visiting an urgent care (IDI 210910CCC1029)). The two incidents reporting injuries that required hospital admission (IDIs 230317CCC3554 and 210114HCC1250) and the two fatalities (IDIs 200915HFE0001 and 190711CCC2487) occurred in a home bathtub with the infant being submerged for an unknown length of time.

A neck float's ability to keep the child's mouth and/or nose above the water depends on the product's capability to remain buoyant and upright during use, and its ability to fit the child for the duration of use such that the child does not slip through the product's center opening to the extent that their mouth and nose become submerged in water. 8 Staff examined the available incident data, incident and exemplar samples of inflatable and inherently buoyant child neck floats, and publicly available consumer-uploaded photos and videos demonstrating use of neck floats. Based on this information staff identified four hazard patterns associated with the risk of drowning: (1) slip-through not associated with inflation; (2) slip-through associated with inflation; (3) slip-through associated with restraint system failure; and (4) submersion without slip-through. 9

Fifty-two reported incidents involved an infant slipping through the product despite the neck float showing no signs of deflation, underinflation, or any other reported product issues. Forty-four of these incidents reported a child's mouth and/or nose submerging under the water, posing a risk of drowning or otherwise aspirating water. The other seven incidents involved a caregiver's immediate rescue which prevented submersion. Where reported, victims ranged in age from 17 days old to 8 months old. One fatal incident, IDI 200915HFE0001, involved the drowning of a 6-month-old female child using a neck float, who was unattended for an unknown amount of time in a bathtub. Upon returning, the mother found the neck float on the surface of the water, and the child was submerged in the tub, unresponsive. Subsequently, the child was hospitalized in critical condition and succumbed to her injuries six days later.

It is common for neck floats to rely solely on the size of the center opening being smaller than the size of a child's head to prevent the child's mouth and/or nose from submerging in water. Neck floats are typically marketed for a wide range of ages and weights. Anthropometric data provided by the World Health Organization (WHO), 10 11 Centers for Disease Control and Prevention (CDC), 12 and other researchers ( e.g., Schneider et al., 1986), demonstrate a large variability in weight, head, and neck dimensions for children, particularly head dimensions for children between the ages of 0 and 12 months. In addition, children's head weight data in the voluntary standard for childcare articles, CEN/TR 13387-1, Child care articles—General safety guidelines—Part 1: Safety philosophy and safety assessment, shows appreciable growth over the years, particularly between 0 and 12 months. 13 This variability in sizes and weights increases the possibility of an ill-fitting neck float and increases the risk of a child slipping through the neck float.

Furthermore, a child's body weight and head mass will not necessarily correspond to their head, face, and neck dimensions. For instance, infants who have especially smaller dimensions, such as those who were born pre-term or those with developmental delays or other conditions that affect head size or shape, may have typical weights for their ages but their smaller cephalometry  14 predisposes them to a higher risk of slip-through. 15 Additionally, children's heads and faces are not uniformly spherical and are somewhat malleable. This can contribute to the risk of the child's head slipping through the neck float and will vary from child to child. In evaluating the incident data, staff observed that for incidents with known victim information and known product age and weight labeling, all victims had ages and weights consistent with the manufacturer-recommended guidance. Therefore, it is reasonably foreseeable that caregivers are likely to select and use neck floats marketed as appropriately sized for their child that may nonetheless be too large or too loose for their child.

Even if a neck float appears to fit a child securely, that is, around a child's neck with little to no extra space, the child's position and activity can cause them to slip through the product. Incident data and publicly available consumer-uploaded content of children in neck floats demonstrate that children will use neck floats on their back, on their chest, on their side, and while sitting or standing, and are likely to tilt their head forward and rearward, tuck their chin, bite the chin rest, twist their head in the product, wiggle their bodies, kick their legs, flail their arms, and even push up on the front underside of their product. These and other actions can separate the discontinuous ends, deform the center opening, or otherwise alter the fit of the neck float on the child, resulting in the child's mouth and nose sliding into the water. Figure 1 exemplifies children wearing neck floats and kicking off the tub floor, leaning back to the point that the tops of their heads are submerged, and pushing up on the front underside of the neck floats, as captured in a consumer's online video of twins wearing neck floats in a bathtub.

Neck float designs may include features intended to reduce the likelihood of slip-throughs. For example, some neck floats include a chin rest, which is intended to keep the child's mouth and nose from being submerged during use. However, many incidents involving submersions due-to slip-through involved neck floats designed with chin rests. Incident data and consumer videos of use show that children may lean and tilt their heads such that their chin bypasses the chin rest; they may twist their head in the product such that their chin is no longer supported by the chin rest; or their changes in direction or body position can cause the product to rotate during use. For example, IDI 210824HCC1797 indicates that the victim was using a neck float with a chin rest for approximately 10 minutes, when “the victim turned his head to the right and suddenly the victim's head slipped through the neck opening.” In addition, incident data, such as fatal case IDI 200915HFE0001, demonstrate that caregivers may put neck floats on their children backwards, or otherwise without placing the child's chin on the chin rest, resulting in the child slipping through the center opening. Therefore, as shown in the incident data, a chin rest does not adequately prevent the submersion hazard.

Incident reports show it is common for children to wear neck floats in water shallow enough for them to sit or lay in a reclined position, yet still deep enough to allow their mouth and/or nose submerge and pose a drowning hazard. For example, IDI 220714CCC3164 reports that the victim was in a bathtub with only approximately 5 inches of water when the victim was suddenly and fully submerged in the water. If children can push/kick off the floor or sides of the body of water, they are more likely to arch their heads back and separate the discontinuous ends of the neck float causing an expansion of the center opening, making it more likely for the child's mouth and/or nose to slip into the water. They may also have better leverage to lift the front underside of the product upward and over their face, as shown in Figure 1, resulting in the mouth and nose submerging in water. Where water depth was reported, most incidents (81 of 83) indicated the product was used in shallow water such as a bathtub or kiddie pool.

If there are obstacles such as tub walls, then it is easier for the product to be partially or fully held in place. If the product is immobilized and the child twists their head, then their chin may no longer be supported by a chin rest, making it more likely for their mouth and nose to slip into the water. If they twist enough that they face the discontinuous ends of the product, then the greater space and separation afforded by the discontinuous ends may make it easier for their mouth and nose to slip into the water. Additionally, if the product is immobilized and the child pushes off other surfaces into the discontinuous ends, they may generate force sufficient to expand the center opening and slip through the product. The University of Michigan Transportation Research Institute (UMTRI) conducted child strength research for CPSC, which demonstrated a wide range of two-foot seated push forces for children ages 6-47 months, such as children in the 6-8 month range at the 95th percentile generating up to 128.8 N (29 pound-force), and children in the 36-47 month range at the 95th percentile generating up to 547.3 N (123 pound-force). 16 Another study found that fetal kick force reached 47 N (10.6 pound-force) at between 20 and 30 weeks of gestation, demonstrating that newborns can generate at least this amount of force or greater (Verbruggen et al., 2018).

The neck float can also be held in place by pressing up against other children in close proximity. Numerous incident reports and publicly available consumer-uploaded photos demonstrate that some children wear neck floats in confined spaces with siblings, even with siblings who are also wearing neck floats. For example, IDI 210901CCC1899, which involved slip-through, indicates that triplets wore infant neck floats in the same bathtub at the same time when the victim suddenly slipped through the product and went underwater for 2 to 10 seconds. Cases like this can result in a very confined space with the floats bumping into each other and even overlapping.

Caregivers are unlikely to understand how these environmental variables, such as shallow water and confined spaces, can contribute to the risk of slip-through by enabling the child to twist their head in the product and exert forces that expand the center opening. It is reasonably foreseeable that they will mistake such environments as providing an increased level of safety, security, and comfort by making the water experience more controllable compared to a standard pool. As detailed further below, they may also underestimate the risk of drowning in shallow water, further affording them a false sense of security.

The slipperiness of the neck float's material, exposure of the neck float to lubricants, and motion can allow the product to slide more easily against the child's skin, increasing the likelihood of the child twisting and slipping through the product during use. Many neck floats are marketed for use when bathing children. Several reports describe the use of soap and shampoo with the product. For example, IDI 210901CCC1906 reports that the caregiver applied soap to the victim's head, and the soap made the victim's head and neck slippery, causing the victim's head to slip through the opening and submerge under the water. In reviewing products sold online and publicly available consumer-uploaded photos, staff observed that it is common for neck floats to be used in soapy environments (Figure 2).

In 54 incidents, children slipped through or had the potential to slip through because the neck floats were more pliable or compressible at lower pressure levels or deflated during use. Thirty-three victims actually slipped through the product. The rest were at risk of slipping through the product because of issues pertaining to inflation (hole, tear, unknown deflation type, etc.). In one incident of a slip-through, it was intentionally underinflated.

Neck floats that are initially fully inflated also can deflate over time or during use, such as from air escaping through holes, tears, or open air valves. Neck floats can be underinflated at the time the child begins to use the product due to numerous reasons, such as the caregiver's perception that the product is uncomfortably snug or the caregiver not realizing that air escaped from the product since the last time it was inflated.

Where reported, victims ranged in age from 28 days old to 10 months old. Two drowning injuries (IDIs 230317CCC3554 and 210114HCC1250) and one drowning death (IDI 190711CCC2487) were reported in this category and involved leaks or deflation during use.

There are unique risks of submersion for inflatable neck floats because they can be compressible and deform unevenly during use, vary in the amount of inflation prior to use, and may lose air during use. Manufacturers typically recommend that neck floats are “fully” inflated when used; however, full inflation is difficult for consumers to estimate. Variability in inflation prior to and during use can impact product performance. The inflatable neck float's dependence on air to take shape means their dimensions vary by the amount of inflation and renders them compressible and unevenly deformable, especially if the product has discontinuous ends. Lower levels of inflation result in greater deformability and can allow the discontinuous ends to separate and expand the size of the center opening (Figure 3).

Fifty-two CPSRMS incidents involved holes, tears, or other leaks in neck floats at the time of the incident. For example, IDI 190711CCC2487 describes a fatal incident involving a 4-month-old male infant who was reportedly unattended for approximately 5 minutes in a bathtub wearing an inflatable neck float. He was found unresponsive floating face down without the neck float. The neck float was still secured in a closed position by both a Velcro strap and a buckle but appeared to be losing air. Another example, IDI 230317CCC3554, describes an injury to a 10-month-old male who was unattended for 5 minutes or less in a neck float in a bathtub. The child was found limp and cyanotic  17 with his face underwater, and the neck float was found to be partially deflated due to a leak in the seam.

Some incidents involved tears, as in IDI 210901CCC1899, which describes a 3-month-old infant slipping through the neck float that had a tear near the safety clip and IDI 210826CCC3605, which describes a 2-month-old male who slipped through a product after it began to deflate due to a leak directly under the chin strap portion of the product. Several incidents, such as IDI 160512CBB2587, involved neck floats deflating during use due to problems with the air valve, such as the valve either opening or not being fully closed.

Manufacturers' instructions often direct caregivers to check the product for tears, holes, valve issues, and other sources of leaks prior to each use of inflatable neck floats. However, instructions to perform these checks can be unclear and ineffective and, as a result, leaks may go undetected or develop after an inspection. It can be particularly difficult to find small leaks or tears, especially along seams. For example, IDI 220714CCC3155 indicates that after the product deflated during use, the caregiver performed the manufacturer-instructed inspection for leaks and did not observe any air coming out of the product. The caregiver continued to use the product with a 6-month-old child and the product deflated further, resulting in the child going “underwater [for] approximately 5 seconds.” In another example, IDI 220714CCC1014 indicates that the caregiver tested the neck float for leaks and could not find any, yet the product deflated resulting in the child slipping through.

Incident data also show that caregivers are unlikely to perform a leak check prior to every use of the product. For example, IDI 230720CCC1767 indicates the caregiver performed the manufacturer-instructed leak test prior to the first use of the product, but not thereafter—contrary to the manufacturer's instructions—and the product deflated during use after being used “at least 10 times before the incident occurred.” Leak checks require time and effort, and studies have shown that even small inconveniences can have a substantial negative effect on behavioral compliance with safety measures (Riley, 2006). Further, the neck floats that staff observed in incident data and on the market are simple and familiar in assembly and use, and they are marketed to keep children, even newborns, afloat in bathtubs and other bodies of water. These factors make it likely that consumers will overestimate the capabilities of the product, underestimate the importance of the checks, and underappreciate the nature and likelihood of the submersion hazard (Inaba et al., 2004; Woodson et al., 1992). This underappreciation of risk is especially likely after the caregiver has seen their child and/or other children ( e.g., through online marketing and endorsements of neck floats) use the product safely without submersion (Godfrey & Allender, 1994; Vredenburgh & Zackowitz, 2006; Ayres et al., 1989). As shown in the incident reports, it is common for caregivers to leave the product inflated between uses, and neither reinflate the product nor perform leak checks, prior to each use of the product. For example, IDI 210908CCC1983 indicates the product was inflated once and never re-inflated, despite being used several times.

Some incident reports, moreover, demonstrate that caregivers have continued to use neck floats despite being aware of leaks because they believed the leak was slow and perceived no hazard in continued use. For example, IDI 210908CCC1982 indicated that the consumer was aware of a leak and “would simply re-inflate it and continue with the bath” until the day her child slipped through the product. Caregivers delay or even forego replacing neck floats with slow leaks for a myriad of reasons, such as underestimating the risk of slip-through and avoiding the practical burdens ( e.g., expense and time) of finding a replacement.

Even without an air leak, neck floats are likely to be used at lower levels of inflation that compromise the products' fit and increase the likelihood of an infant slipping through. Neck float manufacturers often direct caregivers to “fully” inflate the products prior to use; however, as mentioned above, full inflation is likely to be interpreted differently from person-to-person. Consumers also vary in their capability to inflate neck floats and retain the air pressure as they switch from inflating it to closing the valve(s). Slip-through can occur at any level of inflation, but the risk is greater with lower inflation pressures. In examining neck float samples, staff observed that neck floats can take shape at as little as 0.1 pounds per square inch gauge (PSIG). Various factors ( e.g., motion) can cause the center opening to expand, and consumers are likely to underappreciate the risk posed by these factors. Staff observed in product samples and incident reports that neck floats can feel secure around a child's neck and appear as though the child's head cannot pass through the center opening, yet, during use, whether from deflation, the child's activity, or both, the child's head does slip through the product such that their mouth and nose become submerged. For example, IDI 210910CCC1030 indicates that the product felt “quite tight,” yet the victim still slipped through the product without observable deflation.

Additionally, some caregivers intentionally inflate neck floats to air pressures that leave space around a child's neck to address their perception of discomfort for their child, not appreciating that the likelihood of slip-through increases as the product's inflation level decreases. Intentional underinflation has been reported even for neck floats that have warnings against underinflation. For example, IDI 220714CCC3162 indicated that the caregiver intentionally underinflated the neck float because “she was worried about the product being too tight around the victim's neck.” Inflatable neck floats typically do not have other means for adjustability of the fit around the child's neck beyond the amount of inflation, so it is reasonably foreseeable that caregivers seeking to adjust the fit would intentionally underinflate the product.

A restraint system is an interconnecting component, whether adjustable or not, that is integral to a neck float and is intended to hold the occupant in a fixed position relative to the neck float. Staff observed that latches, buckles, or Velcro straps are commonly used to bind the discontinuous ends of neck floats together during use, and keep the product wrapped securely and tightly around the child's neck. Failure of the restraint system is likely to result in the child's mouth and nose being submerged in water, whether from disconnecting entirely or simply loosening during use. According to report Y227Q815A, a 7-month-old infant slipped out of the product due to a latch/restraint failure: “the strap needs to be glued to the other side otherwise it opens.” The integrity of the fasteners, including their connection to each other and to the product, can be affected by user weights, sizes, and actions, such as children pushing up on the floats, kicking, and thrashing.

The locations of the latches may also be a significant factor, though repositioning the location of the latches alone is not enough to prevent slip-through. As shown in Figure 3, some neck floats with discontinuous ends have the latches located far from the child's neck, affording greater separation of the part of the discontinuous ends closer to the child, where separation is most dangerous for center opening expansion.

Children can be submerged in water while wearing neck floats without slip-through or fastening and restraint system failures, putting them at risk of drowning. Where reported, victims ranged in age from 3 to 6 months old. In at least three incidents, children reportedly tilted, rotated, and/or flipped in the neck float such that their faces contacted the water. In IDI 220714CCC3166, the child tilted forward and ingested water; in IDI 220714CCC3156, the child was able to rotate his body such that his face was in contact with water; and in report Y217O989B, a child leaned back and flipped in the product. As discussed above, it is common for children wearing neck floats to exhibit a wide range of body positions and movements.

Additionally, at least one incident, IDI 220714CCC3158, involved an infant being pulled down into the water by an inflatable neck float that filled with water: “The neck float made a popping sound and began to accumulate water, pulling the infant down into the water.” This incident demonstrates another serious risk posed by inflatable neck floats, as numerous cases cite leaks in the products, and leaks can result in the product filling with water and weighing the child down. No injuries or deaths were reported in this category.

Upon publication of this NPR in the Federal Register , staff will make available for review and comment the CPSRMS incident reports relied upon and discussed in the NPR, to the extent allowed by applicable law, along with the associated IDIs. The data can be obtained by submitting a request to: https://forms.office.com/g/10Cqtd8JP6. You will then receive a website link to access the data at the email address you provided. If you do not receive a link within two business days, please contact zgoldstein@cpsc.gov .

In July 2015, the Commission's Office of Compliance conducted one recall of a neck float product. Table 1 below summarizes the recall, notes the recall date, the firm involved, hazard, the approximate number of units affected, number of reported incidents/injuries, and the press release number.

ASTM F963 includes performance requirements and test methods for toys, as well as requirements for warning labels and instructional literature, to reduce or prevent injury to children or death of children from mechanical, chemical, and other hazards associated with toy use. Toys must comply with this standard pursuant to 16 CFR part 1250. Similar to other ASTM standards, ASTM F963 contains the following sections: scope, terminology, referenced documents, safety requirements, labeling requirements, instructional literature, producer's markings, test methods, and additional sections appropriate for toys, such as age grading and flammability testing of certain types of toys. Since passage of the CPSIA in 2008, the voluntary standard has been revised five times: ASTM F963-08, ASTM F963-11, ASTM F963-16, ASTM F963-17, and ASTM F963-23. Pursuant to the update procedures in section 106 of the CPSIA, the Commission has accepted the sequential revisions as the mandatory standard. 15 U.S.C. 2056b(g); 16 CFR part 1250.

Neck floats are subject to the labeling requirements in section 5.4 of ASTM F963-23 for aquatic toys. This standard requires that aquatic toys and their packaging include a safety label that at minimum includes the following, or equivalent, text: “ This is not a lifesaving device. Do not leave child unattended while device is in use. ” It also requires “no advertising copy or graphics shall state or imply that the child will be safe with such a toy if left unsupervised.” As detailed in section V.B. of this preamble, for the proposed requirements for marking, labeling, and instructional literature in this NPR, staff assesses that the warning requirements specified in section 5.4 of ASTM F963-23 are inadequate for neck floats because they do not address the hidden hazards specifically associated with these products, such as the risk of center opening expansion during use, the risk of drowning in very shallow water, and the risk of death associated with partial slip-through. Many of the reported incidents involved neck floats compliant with the labeling requirements specified in ASTM F963-23, thereby demonstrating that the existing labeling requirements are insufficient to address the hazards.

ASTM F963-23 does not establish any performance requirements for aquatic toys, including neck floats. In August 2022, the ASTM F15.22 subcommittee developed a dedicated aquatic toy revision task group to develop a draft ballot with performance requirements for aquatic toys. There have been no balloted draft requirements to date, however.

Incident data described in section III of this preamble demonstrate weaknesses in the current ASTM toy standard. Therefore, the Commission preliminarily determines that ASTM F963 fails to adequately address children slipping through neck floats or being submerged into water and fails to provide the highest level of safety feasible. Accordingly, the Commission proposes more stringent performance and labeling requirements that further reduce the risk of injury associated with neck floats and provide the highest level of safety for such products that is feasible.

The U.S. Coast Guard uses ANSI/CAN/UL 12402-5, Personal Flotation Devices—Part 5: Buoyancy Aids (Level 50)—Safety Requirements, and ANSI/CAN/UL 12402-9, Personal Flotation Devices—Part 9: Test Methods to evaluate level 50 Personal Floatation Devices (PFD's) such as life vests. Some PFDs utilize flotation devices located around the user's collar, similar to neck floats. PFDs are classified into levels based on intended use conditions, including calm versus stormy water and relative closeness to possible rescue such as at the beach versus offshore, with level 50 being the least stringent. These factors are not comparable or relevant to the use of neck floats in a pool or bathtub environment. ANSI/CAN/UL 12402-5:2022 does classify possible PFD users into four categories based on weight, with “Infant PFDs” being intended for users weighing less than 15 kg (33 lbs). However, certain performance requirement metrics for level 50 PFDs are listed as “not allowed” for the infant class. For these reasons, ANSI/CAN/UL 12402-5 and ANSI/CAN/UL 12402-9 are not appropriate to apply to regulate neck floats, without sufficient modification to adapt its otherwise universal test methods with acceptance criteria suited for the infant class.

BS EN ISO 13138, Buoyant aids for swimming instruction, is a multi-part standards collection for the European Union's (EU) three swimming aid classifications. Class A swimming aids such as swim seats, covered by BS EN ISO 13138-3, are intended to be used by children up to 36 months as a “passive” user to introduce them to the in-water environment. Class B swimming aids, covered by BS EN ISO 13138-1, are intended to introduce an “active” user to the range of swimming motions. Class C swimming aids, covered by BS EN 13138-2, are products held in the hands or by the body and are intended to aid “active” users with improving specific aspects of swimming strokes. Class C swimming aids are intended for use by advanced swimmers, or even adult beginners.

Class A devices as defined by BS EN ISO 13138 most closely align with the target users of neck float products within the scope of this NPR. However, BS EN ISO 13138 classifies floatation products that attach at the neck as Class B devices. Most of the general performance requirements in BS EN ISO 13138-1:2021 and 13138-3:2021 and the associated test methods across the two standards are largely identical, with some exceptions. Many of the unique tests for Class A devices in BS EN 13138-3:2021 do not apply to neck floats because Class A devices are swim seats. Tests for Class A products are not appropriate for neck floats because these flotation devices are placed and attached at the waistline versus at the neck for Class B flotation devices.

Additionally, test methods in BS EN ISO 13138-1 for Class B devices, including buoyancy testing, align with the test methods for their respective counterparts in ANSI/CAN/UL 12402 although the exact performance requirements differ. The risk management factors and tests of both ANSI/CAN/UL 12402 and BS EN ISO 13138-1 may address many of the hazards identified in section III of this preamble and are universal in application. However, to address the identified hazards associated with neck floats, the performance requirements and test methods will require modifications, discussed in more detail in section V of this preamble.

Based on incident data described in section III of this preamble and staff's engineering, health sciences, and human factors assessments, the NPR proposes creating a new § 1250.5 to 16 CFR part 1250, Safety Standard Mandating ASTM F963 for Toys, with more stringent requirements by adding performance and labeling requirements for neck floats to further reduce the risk of injury associated with neck floats and to provide the highest level of safety for such products that is feasible. Further, this NPR proposes revising the title of part 1250 from Safety Standard Mandating ASTM F963 for Toys to “Safety Standard for Toys,” to reflect the inclusion of proposed requirements that do not incorporate by reference existing requirements in the ASTM F963 voluntary standard.

To address the risk of injury described in section III of this preamble, this NPR proposes to add a definition for “neck float” discussed in section II of this preamble and to add new performance requirements and replace existing labeling requirements for neck float. The NPR proposes to add test requirements for conditioning, buoyancy, fastening systems, restraining systems, and neck opening and to update marking, labeling and literature requirements. The additional requirements are more stringent than the existing requirements in part 1250 to further reduce the risk of injury associated with neck floats and to provide the highest level of safety for such products that is feasible to address child drownings associated with neck floats. This section of the preamble describes the proposed additions in § 1250.5.

Because ASTM F963-23 does not establish any performance requirements for aquatic toys, including neck floats, it fails to adequately address children slipping through neck floats or being submerged into water and does not provide the highest level of safety for such products that is feasible.

The NPR proposes conditioning requirements for neck floats prior to conducting any other tests under the proposed rule in § 1250.5(c)(1). The purpose of a conditioning procedure is to simulate the conditions in which the product may be stored or used. This helps to ensure that the product is tested under realistic circumstances. The proposed conditioning procedure involves subjecting the neck float to various stressors based on foreseeable use environments, which include exposure to cold, hot, and room temperature, exposure to chlorinated salt water, and exposure to ultraviolet (UV) light. All inflatable neck floats subject to the proposed rule should be deflated for the proposed testing requirements in the conditioning procedure.

Temperature changes can introduce both short- and long-term impacts on any material. For plastics and polymer chains, short-term effects can include expansion or contraction of objects' shape, as well as softening of the material. Long-term exposure may result in deformation, or thermal degradation leading to cracking or breaking. 19 These material changes are typically associated with exposure to high temperature, as can be expected when the neck float is used for bathing purposes or is stored outside with other swim toys; however, transitioning between cold storage to hot use may also exacerbate the mechanical degradation.

Section 5.5.4.1 of ANSI/CAN/UL 12402-9:2022 includes a “Temperature cycling test” for inflatable PFDs. The temperature cycling test requires alternate exposure to hot temperature at 60 ± 2 °C (140 ± 4 °F) for 8 hours, then to cold temperature at −30 ± 2 °C (−22 ± 4 °F) for 8 hours, repeated for two complete cycles.

The Commission proposes to incorporate this test method from section 5.5.4.1 of ANSI/CAN/UL 12402-9:2022, for both inflatable and inherently buoyant neck floats, with modifications, in the proposed rule under § 1250.5(c)(1). ANSI/CAN/UL 12401-9:2022 contains separate requirements for inherently buoyant PFDs that includes steps to fully open the devices to simulate donning and check for damage. However, as discussed in Section II of this preamble, the design of inherently buoyant neck floats does not typically include extraneous moving parts that require additional “opening” steps beyond being secured around the child's neck. Therefore, CPSC proposes to apply the thermal conditioning procedure in section 5.5.4.1 of ANSI/CAN/UL 12402-9:2022 to both inflatable and inherently buoyant neck floats.

BS EN ISO 13138-1 also recommends temperature conditioning for swimming aids, with a hot temperature set point of 60 ± 2 °C (140 ± 4 °F) and cold temperature set point of −10 ± 2 °C (14 ± 4 °F). Since it is not reasonable to expect that a neck float will be stored or operated in temperatures low enough to warrant conditioning to −30 ± 2 °C as recommended by section 5.5.4.1 of ANSI/CAN/UL 12409-9:2022, the NPR proposes to increase the temperature set point of the cold extreme from −30 ± 2 °C (−22 ± 4 °F) up to −10 ± 2 °C (14 ± 4 °F) based on the cold temperature recommended by BS EN ISO 13138-1 for comparable swimming devices.

Additionally, rather than repeat thermal conditioning for two, 8-hour alternating cycles, the NPR proposes to condition neck floats for a single 8-hour period at both temperature extremes (60 ± 2 °C and −30 ± 2 °C), followed by a 24-hour period at room temperature (20 ± 2 °C (68 ± 4 °F)). The NPR proposes to reduce the number of thermal cycles required in section 5.5.4.1 of ANSI/CAN/UL 12402-9:2022 to more accurately reflect the use and storage conditions of neck floats in comparison to those of PFDs. Unlike PFDs, neck floats are not expected to be stored nor operated within the same extreme conditions expected of a life-saving device. The 24-hour requirement to hold the neck float at room temperature is sufficient to ensure that the hot and cold temperature exposures do not interfere with the remaining two conditioning requirements for neck floats ( i.e., chlorinated salt water and UV exposure).

Exposure to chlorine environments, as may be expected of a pool, can result in an adverse chemical reaction with a plastic or polymer chain if the material has not been carefully selected for, or prepared with, suitable chemical resistance. 20 To address this, the proposed rule requires conditioning for exposure to chlorinated salt water to simulate the use of a neck float in a pool.

To condition for exposure to chlorinated salt water, section 6.1 of BS EN ISO 13138-1:2021 requires the swimming aids to be submerged in a chlorinated saltwater solution. Staff recommends adopting similar procedures to account for exposure to various use locations of neck floats, which may include chemically treated bodies of water such as pools. Accordingly, the NPR proposes to require that a neck float should be submerged in a chlorinated saltwater solution. The solution should be prepared by dissolving 32 g  21 of sodium chloride (NaCl) in one liter of aqueous solution containing 2 ppm chlorine at pH 7.0-7.8. 22 The neck float should be submerged in the necessary volume of the prepared chlorinated saltwater solution, in darkness and at room temperature (20 ± 2 °C (68 ± 4 °F)) for 8 hours.

UV light can cause degradation of plastics and polymer chains through a photochemical effect. 23 Over continued exposure, plastics may weaken, begin to look discolored, take on a chalky appearance, or become brittle to the touch. 24

Section 4.2.1.1-4.2.1.4 of ANSI APSP ICC-16 (2017), American National Standard for Suction Outlet Fitting Assemblies (SOFA) for Use in Pools, Spas and Hot Tubs, includes the “Ultraviolet Light Exposure Tests” test method for exposure to ultraviolet light (UV). 16 CFR part 1450. Based on the test method requirements in section 4.2.1.1-4.2.1.4 of ANSI APSP ICC-16, a product is required to be exposed to UV light under one of the four UV exposure conditioning methods, selected per the discretion of the evaluator, incorporated here:

(a) 720 hours of twin enclosed carbon-arc (ASTM G153, Table X1.1 Cycle 1 except the Black Panel Temperature shall be 50 °C); or

(b) 720 hours of twin enclosed carbon-arc (ASTM G153, a programmed cycle of 20 minutes consisting of a 17-minute light exposure and a 3-minute exposure to water spray with light shall be used with a black-panel temperature of 63 ± 3 °C); or

(c) 1000 hours of xenon-arc (ASTM G155, Table X3.1 Cycle 1 except the Black Panel Temperature should be 50 °C); or

(d) 750 hours of fluorescent (ASTM G154, Table X 2.1 Cycle 1 except the 8-hour UV shall be at a Black Panel Temperature of 50 °C and the 4-hour condensation Black Panel Temperature shall be 40 °C).”  25

In § 1250.5(c)(1), the Commission proposes to incorporate sections 4.2.1.1-4.2.1.4 of ANSI APSP ICC-16 to simulate UV light exposure. This provision accounts for sun exposure during use of neck floats, which may include outdoor use and temporary or primary outdoor storage conditions.

In § 1250.5(c)(2) the Commission proposes minimum buoyancy requirements to prevent unintentional submergence. Specifically, the Commission is proposing to require that all neck floats demonstrate a minimum upward buoyancy equal to or greater than 30 percent of the expected weight capacity of the neck float, which will ensure that a neck float is buoyant during use. 26 Additionally, the Commission proposes to require inherently buoyant neck floats to not lose more than 5 percent of their initial buoyancy after being submerged for a 24-hour period.

The expected weight capacity, as defined in § 1250.5(b), will be determined as the neck float's maximum recommended user weight, or the weight provided in Table 2 based on the neck float's maximum recommended user age, whichever is greater.

Section 5.5.9.2 of ANSI/CAN/UL 12402-9:2022 requires the use of a weighted cage with a calibrated load cell  28 to submerge a swimming device in a tank of fresh water, with its upper surface at a depth of 100mm to 150mm below the water surface without touching any sides of the tank. In addition, the product must be secured within the cage such that both it and the cage always remain approximately horizontal and level. The test method requires the submerged weight of the cage be 1.1 times the expected buoyancy value of the swimming device to ensure there is sufficient load to fully submerge the weighted cage system when combined with the swimming device.

The procedure in section 5.5.9.3 of ANSI/CAN/UL 12402-9 directs that the cage should be suspended in the water tank at a temperature of (20 ± 5) °C. First, the weight of the immersed cage with the product should be recorded, as A. Next, the weighted cage and product should remain immersed for 24 hours, and the weight shall be re-recorded as B. Lastly, the product should be removed from the cage and the weight of the immersed cage alone, without the product, should be recorded as C. Section 5.5.9.4 of ANSI/CAN/UL 12402-9 explains that the initial buoyancy is determined by deducting A from C, and the final buoyancy is taken by deducting B from C. The buoyancy loss is taken by deducting the final buoyancy from the initial buoyancy.

The Commission proposes to incorporate this test method from sections 5.5.9.2-5.5.9.4 of ANSI/CAN/UL 12402-9:2022, with modifications, in the proposed rule to determine the minimum buoyancy for all neck floats, under § 1250.5(c)(2). Section 5.5.9.3 of ANSI/CAN/UL 12402-9:2022 requires a swimming device to be inflated to the pressure provided by its primary means of inflation, or to 4.0 ± 0.1 kPa (0.58 ± 0.016 PSIG), whichever is less, if it contains inflatable components. This NPR, however, proposes that any neck float utilizing inflatable components must be inflated to the lower internal air pressure of 0.1 ± 0.01 PSIG for the duration of this test. It is foreseeable that a consumer could use the neck float while inflated to only 0.1 PSIG—even if that is below the proper operating pressure—because the float may appear to be in the proper shape and functional at this inflation level. An internal pressure of 0.1 PSIG is the lowest foreseeable operating pressure for neck floats, and therefore performance requirements that depend on inflation pressure (such as buoyancy) should be evaluated at that lowest limit. During experimental testing, staff found at least four sample inflatable neck floats (representing two distinct make/models) met the requirements of this NPR's proposed buoyancy test when inflated to 0.1 PSIG internal pressure.

This NPR proposes to evaluate the minimum required buoyancy of the neck float as a function of its intended user weight. Requiring the upward buoyancy to be equal or greater than 30 percent of the expected weight capacity is based on applying a safety factor of three to 10 percent, which is the approximate body weight, on average, a human bears while submerged to their neck in water. 29 Using three as the safety factor is based on performance requirements in ASTM F963 for toys intending to bear the weight of a child, such as the overload testing of ride-on toys and toy seats in section 8.28 of ASTM F963, which requires the test load to be three times the weight indicated by Table 7 in ASTM F963 or three times the manufacturer's stated weight capacity, whichever is greater. In this instance, staff equates ASTM F963's requirement for ride-on-toys to bear three times the dry-land weight of a child to the proposed buoyancy requirement that neck floats bear three times the in-water weight of a child.

In addition, the Commission proposes that inherently buoyant neck floats must demonstrate no more than a 5 percent loss of buoyancy after being submerged for 24 hours to ensure that inherently buoyant materials do not absorb enough water such that the product's ability to float properly is adversely impacted. The 5 percent loss is based on the staff's analysis of other relevant standards. Both ANSI/CAN/UL 12402-9 and BS EN 13138-1 evaluate the buoyancy of flotation devices after a 24-hour submergence period to determine how much buoyancy is lost. BS EN 13138-1 requires inherently buoyant swimming aids to lose no more than 10 percent of their initial buoyancy, while ANSI/CAN/UL 12402-9 requires PFDs to lose no more than 5 percent. The Commission preliminarily determines that the 5 percent loss metric is the more stringent of those two standards and is more appropriate to achieve the highest level of safety that is feasible.

To reduce the likelihood of a restraint system failure on a neck float, which can result in a child slipping through the product, the Commission proposes in § 1250.5(c)(3) requirements for the release mode of the fastening mechanism, and overall mechanical integrity of restraint systems. A fastening mechanism, such as a buckle, on a neck float serve as a restraint system because it secures and holds the child in place during use. The requirements proposed are intended to reduce the likelihood of an unintentional release of a fastener mechanism during use, and to reduce the likelihood of component failures in a restraint system and detachment from the neck float as seen in Y227Q815A.

Section 5.4.2 of BS EN 13138-1:2021, Fastening Systems, requires parts of a swimming device used to attach the swimming device to the body or to connect any other functional components to have at least two simultaneous or sequential actions for release to prevent unintended opening. Alternatively, the standard allows for a single action release if it requires at least 50 N to open. The standard further directs that this testing must be performed in accordance with Annex C of BS EN 13138-1:2021, Procedure for testing the security of the pressure release of buckles without double action (simultaneous/sequential) release. Annex C specifies that the buckle used to secure a swimming device should be positioned and loaded with 5 N on a plain, rigid surface. For single release, mechanisms, a force of 50 N is required to be applied at point 3, perpendicular to the release mechanisms of the buckle.

Section 4.13.1.2 of ASTM F963-23 also includes requirements for latching and locking mechanisms, which require either a double-action locking device with two distinct and separate actions to release, or a single-action locking device that requires a minimum force of 45 N to open. There are similar provisions in other ASTM standards for children's products that incorporate restraint straps, such as section 6.4.7 of ASTM F833-21, Standard Consumer Safety Performance Specification for Carriages and Strollers. 16 CFR part 1227. Based on these comparable restraint system requirements, the Commission proposes to require the release mechanism of neck float fasteners to have either a double-action release system with two distinct, but simultaneous actions to release, or a single-action release system that requires a minimum of 50 N to release. A minimum of 50 N to release is the greatest minimum force requirement for single-action release mechanisms in the applicable standards, and therefore ensures the highest level of safety.

Unlike in ASTM F963-23, which allows the double-action release mechanism to use two separate actions to release, the NPR proposes to require two distinct, but simultaneous actions to release. Two simultaneous actions, such as depressing and twisting the cap of a medicine bottle open, are considered more difficult for a child in the age range considered by this NPR (0-4 years) to perform without assistance. Because there are no performance requirements for double-action release system, allowing the double-action release system to utilize sequential actions where each action can be performed one-at-a-time would be equivalent to allowing the neck float to rely on two unverified single-action release systems for fastening to the user.

Section 6.4.4 of ASTM F833-21, requires that a restraint system and any closure mechanisms such as buckles must not part or slip more than 1 inch (25 mm) when tested in accordance with section 7.5 of ASTM F833-21. 16 CFR part 1227. Additionally, the standard requires that any anchorages must remain attached without separating from their attachment points during testing. The standard also requires that the restraint system may not move more than 2 inches (51 mm) when tested in accordance with section 7.5.2.8. Section 7.5.1, Restraining System Integrity Test Method, of ASTM F833-21 specifies the testing method for this requirement, which includes applying a force of 200 N (45 lbf) to a single attachment point on the restraining system. Specifically, the standard directs that force should be applied gradually within 5 seconds and maintained for an added 10 seconds, which should be repeated a total of 5 times with a 5 second maximum time interval between tests for each attachment point on the restraint system. The standard further requires that, after testing, the Civil Aeronautical Medical Institute (CAMI) dummy, required for this test, should not be fully released.

As noted in section III, the confined space of a bathtub environment provides the neck float occupant with possible surfaces to kick, pull, push, twist themselves off, or otherwise struggle against the surfaces of the bathtub. To account for this expected elevated force, the Commission proposes to incorporate section 6.4.4 and 7.5.1 of ASTM F833-21, with modifications to omit both the CAMI dummy evaluation following testing, and any evaluation to section 7.5.2 of ASTM F833-21, Restraining System occupant Retention Test Method. The CAMI dummy and section 7.5.2 testing have been omitted from the proposed restraint system requirements because the seat-based retention tests are incompatible with the neck float retention method. Instead, the NPR will address occupant retention through the proposed neck opening requirements in section V.A.4.

The Commission has considered a potential requirement for neck floats to incorporate a secondary attachment system as a backup in the event the primary neck opening securement fails. CPSC staff, however, have identified a risk that a child could partially slip through the neck opening and be supported by the secondary system with their mouth below the waterline, creating a drowning hazard without a notable visual change to alert the caregiver to the danger. The addition of the secondary attachment system also may convey to the caregiver the incorrect impression that there can be no possibility for the child to slip through the product. The Commission requests comments on a secondary attachment system for neck floats to address hazards associated with use the of neck floats.

To address the hazard of a child slipping-through a neck float, the Commission proposes requirements for the neck opening on a neck float under § 1250.5(c)(4). To meet the proposed requirement, the neck opening of the neck float must not admit the passage of a specified head probe when subjected to a specified dynamic movement, in accordance with the proposed test method. Currently, there are no existing standards or test methods developed to ensure that an aquatic toy such as a neck float will not pose a risk of drowning because of slip-throughs during its use. As a result, staff developed a test and test method to accommodate this need.

Under the proposed neck opening test, first the neck opening of the neck float is saturated with a soapy solution to simulate use in a bathtub or with a slippery substance such as sunscreen. Second, the specified head probe is be weighted to a specific mass (M1) and positioned in the neck float. Next, a hanging weight of another specific mass (M2) is suspended below the head probe at a specified distance (L) of the specified head probe (see Table 3 for details on M1, M2 and L for various user-age categories). Finally, the hanging weight is brought up to a 90-degree displacement angle and released such that it is swung front-to-back relative to the neck float's user as shown in Figure 4. The hanging weight must be allowed to move freely for 30 seconds in this manner. After 30 seconds have passed, the hanging weight is brought up again to a 90-degree displacement angle and then released so that it swings side-to-side relative to the neck float's user and allowed to move freely for 30 seconds in this manner. This alternating pattern is repeated for up to a total of ten swinging cycles, five front-to-back and five side-to-side.

This dynamic test method was selected to account for the variety of movements children using this product have been reported to engage in, including kicking, back and belly floating, twisting, and pushing off of bathtub or pool walls and floors. The number of swing cycles, direction, and duration have been determined based on the CPSRMS incidents which contained many reported the incident occurring within 10 minutes of use. Based on this, the minimum number of dynamic swing cycles in the proposed test is set at ten swings and reflects the child shifting their body weight at least one time every minute. This approximation is considered a conservative estimate of a child's expected activity over the 10 minute duration. The proposal to alternate directions between front-to-back and side-to-side accounts for multi-direction movements. The 90 degree starting swing angle and 30 second swing cycle reflect the shift in body weight, from the child's transition from floating on their back or belly to one where their legs are positioned below them.

The proposed test for neck opening is required to be repeated for both the smallest and largest head probe in the neck float's recommended user range to ensure that the neck float adequately retains the occupant by preventing the occupant from slipping fully through the neck opening. Evaluating the neck float using the smallest specified head probe ensures the neck opening is not large enough, or cannot expand to become large enough during use, to allow the smallest foreseeable occupant to slip fully through it. Evaluating the neck float using the largest specified head probe ensures the neck float can adequately support the forces generated by the largest foreseeable occupant such that they cannot fully slip through it, as well. If a neck float uses an adjustable fastening mechanism then the evaluation of both probes is performed at the largest, or loosest, possible size setting.

As discussed in section III, some reports indicated that caregivers loosened or intentionally deflated a neck float because they believed it was too tight around their child's neck (IDIs 220714CCC3162 and 180403CCC1583). To ensure that a neck float achieves the highest-possible level of safety, the proposed test therefore includes testing the smallest recommended child using a product at the loosest available setting. If the neck float utilizes inflatable components, those components must be inflated to an internal pressure of 0.1 ± 0.01 PSIG for the duration of this test. The internal air pressure specified by this test method has been discussed at length in the section V.A.2 of this preamble.

As part of this test, the Commission proposes including the soapy water solution as described in “Baby Wash Test Solution” from section 7.4.1.5 of ASTM F1967-19 Standard Consumer Safety Specification for Infant Bath Seats in the proposed rule for neck floats under § 1250.5. 16 CFR part 1215. ASTM F1967 requires the use of an established baby wash solution mix to evaluate the stability of infant bath seats under the same onerous soapy conditions. Incidents discussed in section III of this preamble support that neck floats may be used in soapy water solutions. Therefore, to achieve the highest-level of safety that is feasible, a test sample must be saturated with soap to simulate the most slippery foreseeable use condition to evaluate the neck float's ability to prevent the user from slipping through the neck float.

The choice of specified head probe, mass M1, mass M2, and length L is based on the manufacturer's recommended user age range, in conjunction with Table 3. If the recommended user age falls between two ranges, then the lower range shall be used to determine the smallest probe and associated testing conditions, and the higher range shall be used to determine the largest probe and associated testing conditions.

Dimensions of the four specified head probes, depicted in Figure 5, are based on available anthropometric data (Schneider et al., 1986). The narrowest end of the probe is an ellipse whose semi-major axis corresponds to the neck depth, and whose semi-minor axis corresponds to the neck breadth. The widest end of the probe is an ellipse whose semi-major axis corresponds to the head length, and whose semi-minor axis corresponds to the head breadth on the plane passing through the point of greatest protrusion on the forehead and the point of greatest protrusion on the back of the head. The distance between the narrowest and widest circumferences on the probe is equal to the height of the head.

The four head probes represent children of various ages. Probe A is used to test products intended for children from 0 up to 3 months old, Probe B covers products for children up to 6 months old, Probe C covers products for children up to 18 months old, and Probe D covers products for children up to 48 months old. CPSC staff established these subsets based on the change in overall rate of growth of the head from 0-48 months, which generally develops and grows more rapidly until around 7-9 months. All dimensions used for the head probes represent the 5th percentile measurement of the specified age range for that probe. Where a probe is designated for use to evaluate multiple age ranges, the smallest 5th percentile measurement for that span has been selected.

Staff note that the maximum neck circumference of a 43-48-month-old (10.2 in.) is smaller than the minimum head circumference of a 0-3-month-old (14.6 in.). Based on these measurements, a neck float intended to accommodate the neck of a 48-month-old should still be expected to prevent the head of a 3-month-old from slipping through it. If the head probe can slip through the neck opening then that means the neck opening is either large enough, or can expand during use to be large enough, to allow that child's head to fully slip through the neck opening and submerge underwater. Staff assess this slip through metric to be a conservative representation of the slip through event.

To simulate foreseeable use stresses on neck floats during use, each head probe is weighted to mass M1 and using a hanging weight of mass M2 positioned at distance L during the evaluation. Mass M1 represents the 95th percentile weight of a child's head, alone, for the specified age range. Mass M2 has been selected as 20 percent of the 95th percentile weight of the user in the specified age range. As noted in section V.A.2, the average human bears 10 percent of their dry-land weight when submerged up to their necks. The hanging weight used in this assessment is double the expected amount, or 20 percent of the dry-land weight for that user, to incorporate an appropriate factor of safety. Distance L has been determined as half of the 95th percentile stature of the user in the specified age range. This choice is made to approximate the position of the hanging mass at roughly the user's center of mass. Distance L includes the length between the narrowest and widest circumferences of probe to account for that distance as being the length of the user's head, as described in the paragraphs above.

The four hazard patterns addressed in this NPR may not be exhaustive of the hazards associated with this product category. For example, the United States Food and Drug Administration (FDA) has warned about the risk of death due to suffocation, strain, and injury to a baby's neck. 33 Accordingly, the Commission is seeking comment on whether it should strengthen these performance requirements to address other hazards, or whether it should promulgate alternative performance requirements.

Section 5.4 of the ASTM F963-23 requires aquatic toys, such as neck floats, and their packaging to have a warning that states: “ This is not a lifesaving device. Do not leave child unattended while device is in use. ” The incidents discussed in section III of this preamble reflect that the existing safety messaging by way of marking, labeling, and instructional literature has had limited effectiveness for preventing the submersion hazard associated with neck floats. Indeed, it is reasonably foreseeable that caregivers will disregard warnings and instructions for neck floats and fail to adhere to them for each use. Many of the reported incidents involved products that not only met but exceeded the existing ASTM F963-23 requirements. Safety messaging has inherent weaknesses compared to designing the hazard out of a product or guarding consumers from the hazard (Laughery & Wogalter, 2011), and it cannot, alone, adequately address the specific identified hazards from neck floats. Drowning statistics and water safety campaigns have shown that caregiver supervision can be imperfect and insufficient to avoid drowning hazards, and many children drown every year. 34 35 Further, warnings and instructional literature depend on persuading the consumer to change their behavior to avoid a hazard, and various factors can impede the effectiveness of these mediums. Conversely, the requirements for safety messaging can be improved to increase the likelihood of consumers seeing, reading, remembering, and heeding the warnings and instructions, and better support the Commission's proposed performance requirements. Accordingly, the Commission proposes in § 1250.5(d) to require the following marking, labeling, and instructional literature requirements for all products within the scope of the NPR and seeks comment on the format, location, and content requirements of the proposed warnings.

The primary U.S. voluntary consensus standard for product safety signs and labels, ANSI/NEMA Z535.4, American National Standard for Product Safety Signs and Labels, 36 recommends that on-product warnings include content that addresses the following three elements:

• a description of the hazard;

• information about the consequences of exposure to the hazard; and

• instructions regarding appropriate hazard-avoidance behaviors.

Providing more explicit or detailed information in a warning has been found to increase warning effectiveness (Laughery & Smith, 2006) by increasing the perception of injury severity and perceived hazard (DeJoy, 1999). Vividness of message content has been found to increase message salience by triggering motivation to act in consideration of the warning (Murray-Johnson & Witte, 2003). Accordingly, the Commission proposes, in § 1250.5(d)(1), that the products within scope of the rule, and their retail packaging, contain the warning message shown in Figure 6, including the use of bolding and the formatting of the text, the safety alert symbol, and the signal word, in the order presented.

The portion, “[specify lower bound for age],” is to be filled with the lowest age intended for use of the product and in bold font. The portion, “[specify upper bound for age],” is to be filled with the highest age intended for use of the product and in bold font. The portion, “[specify lower bound for weight],” is to be filled with the minimum intended weight in pounds for use of the product and in bold font. The portion, “[specify upper bound for weight],” is to be filled with the maximum intended weight in pounds for use of the product and in bold font. The portion, “{Check for leaks before each use. Never use with leaks.},” is only required and appropriate for child neck floats with inflatable components. The brackets are to be omitted from the label in each case above.

In developing the proposed message panel, among other sources, staff considered the available incident data, reasonably foreseeable use, warnings required for “Aquatic Toys” per ASTM F963, warnings recommended and required by other standards and bodies, and recommendations and requirements specified in ANSI/NEMA Z535.4. Additionally, the Commission considers that consumers are less likely to read, heed, and remember safety messaging if they feel overwhelmed by the volume and/or depth of the information. The Commission encourages manufacturers to include additional product-specific warnings where necessary; however, such warnings shall neither contradict nor confuse the intended meaning of the required warnings.

The statement, “THIS PRODUCT DOES NOT PREVENT DROWNING,” begins the message panel by articulating clearly that children can still drown even though they use the product. Each letter in this statement shall be bold and capitalized to strengthen the statement and attract the consumer's attention to the warning label. If the consumer reads nothing else, this statement may challenge some consumers' perception that the product will necessarily keep the child's mouth and nose above the water. This perception of safety is dangerous because it may lead consumers to provide inadequate supervision of the child using the product in water. This language is required by the Australian Competition & Consumer Commission (ACCC) for floatation aids as specified in the Australian standard, AS/NZS 1900:2014, Flotation aids for water familiarization and swimming tuition. 37 Similar language is required for Aquatic Toys per section 5.4 of ASTM F963-23 ( i.e., “This is not a lifesaving device.”) and for infant bath seats per ASTM F1967 ( i.e., “NOT A SAFETY DEVICE.”). 38 16 CFR part 1215. However, the Commission preliminarily determines that the statement, “This is not a lifesaving device,” is not appropriate for the product because the proposed warnings better satisfy the intent to communicate that the product does not prevent drowning, and to include it in addition to the other warnings could dilute the warnings and increase the risk of warning exhaustion. Therefore, instead of complying with the warning text “This is not a lifesaving device.” in section 5.4 of ASTM F963-23, the Commission proposes to require the language in Figure 6.

The statement, “Children have died after slipping through neck floats,” may reduce the likelihood of consumers otherwise inferring that the life-threatening hazard is just an unlikely potential risk rather than a hazard that has occurred and may happen to their child. As detailed above in section III, at least 87 incidents involved a child's head slipping through, two of which resulted in the child dying as a result of drowning. In most cases, the caregiver immediately intervened such that the child either did not fully submerge or was only submerged briefly. Had the caregiver not been present, these incidents could have resulted in the child drowning. Similar language is used in numerous other standards, such as for infant bath seats per ASTM F1967, infant bathtubs per ASTM F2670, Standard Consumer Safety Specification for Infant Bathtubs, and Beach Umbrellas per ASTM F3681, Standard Consumer Safety Specification for Beach Umbrellas and Anchor Devices. 39 40

The statement, “Neck opening can get bigger during use, even if it feels snug,” addresses the critical and hidden hazard of center opening expansion, because consumers are likely to expect that the center opening will not permit the child's mouth to go underwater if the product is tightly fitted, even though this is possible and has occurred in reported incidents ( e.g., IDI 210910CCC1030 detailed above). Without dispelling this false assumption of safety, the consumer is more likely to discredit the warning messages and use the product without taking all necessary precautions, particularly if they have previously used the product without incident or seen others use the product without incident. Of the 21 incident reports that mentioned whether the neck float felt snug when placed on the victim at the time of the incident, 19 of the incident reports indicated the neck float did have a tight fit.

The statement, “Your child can drown in as little as 1 inch of water,” communicates an important point that may help maintain the consumer's attention and educate them, as they are unlikely to be familiar with this fact, 41 and they are likely to be caught off guard by it. It serves an important role by emphasizing that even very shallow water can be lethal, which may contradict the consumer's expectation of safety associated with using the product in shallow water, such as in bathtubs. The statement is also personalized to the reader by using the words: “Your child,” as opposed to “a child,” or similar language, which can more easily be disregarded by the consumer as not applying directly to the child for whom they are responsible. 42 Other standards, such as ASTM F3681 on beach umbrellas, also take the approach of personalized language regarding the risk of death. 43

The message panel includes bulleted statements for important information about how to avoid the drowning hazard. The statement, “Always stay within arm's reach to keep your child's mouth above water,” emphasizes the importance of a caregiver's attentiveness to a child while using a neck float to be able to rescue the child immediately if their mouth and/or nose submerges. Unattended children using neck floats in bathtubs sustained injuries and two reportedly died ( e.g., IDIs 190711CCC2487 and 200915HFE0001). Again, caregivers may develop a false sense of security when using the neck float, relaxing their supervision of the child for numerous reasons, such as past incident-free experiences, the perception that the neck float is too tight for the child to slip through, and the presumption of safety associated with the neck float being a consumer product marketed to such young ages for the purpose of keeping their mouth and nose above the water (Woodson et al., 1992).

The American Academy of Pediatrics (AAP) has encouraged caregivers to use “touch supervision” that is, remaining within arm's reach of infants and toddlers swimming in pools. 44 Section 5.4 of ASTM F963—23 requires a warning statement that addresses the following: “Do not leave child unattended while device is in use.” Similar juvenile product standards, such as ASTM F1967 and ASTM F2670, also support the use of statements pertaining to supervision and proximity. 45 The proposed language is stronger for neck floats because it highlights the risk of partial slip-through, which is a small movement that requires a more attentive caregiver than simply monitoring for a large motion, such as the child fully submerging. Further, the personalization via “your child” may help encourage the consumer to see the warning as applying to the child for whom they are responsible and increase its impact.

The statements specific to inflatable products, “Check for leaks before each use. Never use with leaks,” are intended to motivate consumers using inflatable neck floats to check for leaks before each use and to never use neck floats with leaks. Detailed in section III of this preamble, numerous incidents involved products that had leaks. In many cases, the consumers did not report testing the product for leaks prior to every use, and some cases mentioned that the consumers were aware of slow leaks and continued to use the product anyway due, in part, to past incident-free experiences and the costs associated with having to replace the product. The proposed instructional literature requirements, detailed below, complement this warning with specific instructions to help the consumer avoid the risks of underinflation. The Commission cautions that, while the proposed statements may help some consumers prevent submersion associated with leaks, most reported incidents involved products with warnings and instructions pertaining to leaks.

Lastly, the statements in brackets pertaining to the child's age and weight are intended to help and encourage the consumer to select and use the appropriate product for their child; though, as explained above, children can vary considerably in the key face, head, and neck measurements relevant to slip-through, regardless of their age and weight. Discussed below, the Commission proposes instructional literature requirements to further aid the consumer in accurately taking the necessary measurements. Providing the intended age and weight also serves to guide testing of the products to increase the safety of the products for the intended and foreseeable end users.

CPSC commonly uses ANSI/NEMA Z535.4 as a reference for warning formatting requirements. Human factors experts and warnings literature regularly cite ANSI/NEMA Z535.4 when discussing the design and evaluation of on-product warning labels and generally consider the ANSI Z535 series of requirements as the benchmark and state of the art standards against which warning labels should be evaluated for adequacy (Vredenburgh & Zackowitz, 2005; Wogalter & Laughery, 2005). Furthermore, the scope of ANSI/NEMA Z535.4 is broad enough to encompass nearly all consumer products, including children's products and toys (Kalsher & Wogalter, 2008).

Signal words, colors, graphics, and placement all increase conspicuity. The salience of a visual warning can be enhanced using large and bold print, high contrast, color, borders, pictorial symbols, and special effects like flashing lights. Therefore, the NPR proposes that the warning label design requirements for children's neck floats adopt the current recommendations from ASTM's Ad Hoc Language Task Group (Ad Hoc Task Group). 46 Staff has worked closely with the Ad Hoc Task Group to develop warning recommendations that are based largely on the ANSI/NEMA Z535.4 requirements. The recommendations provide permanent, conspicuous, and consistently formatted warning labels across juvenile products. Warnings that meet the recommendations address numerous format issues related to capturing consumer attention, improving readability, and increasing hazard perception and avoidance behavior. Such recommendations include requiring that the proposed warnings conform to ANSI/NEMA Z535.4 sections 6.1-6.4, 7.2-7.6.3, and 8.1, with the following changes to the ANSI standard:

• For enforceability, in sections 6.2.2, 7.3, 7.5, and 8.1.2, replace the word “should” with “shall;”

• Also, for enforceability, in section 7.6.3, replace the phrase “should (when feasible)” with the word “shall;” and

• To allow greater production flexibility without affecting the efficacy of the warnings, strike the word “safety” when used immediately before a color ( e.g., replace “safety white” with “white”).

Further, certain text in the message panel must be in bold and in capital letters as shown in the example warning label in Figure 6, above, to provide emphasis and capture the reader's attention. The signal word “WARNING” must appear in sans serif letters in upper case only and be at least 1/8 inch (3.2 mm) in height and be center or left aligned. The height of the exclamation point inside the safety alert symbol, an exclamation mark in a triangle, as shown in the example warnings must be at least half the height of the triangle and be centered vertically inside the triangle. The message panel text capital letters cannot be less than 1/16 ″ (1.6 mm) and the message panel text shall be center or left aligned and appear in sans serif letters. The text in each column should be arranged in list or outline format, with precautionary (hazard avoidance) statements preceded by bullet points. Precautionary statements must be separated by bullet points if paragraph formatting is used.

Warning research indicates that warning labels with prominent placement increase the likelihood of being noticed (Rogers et al., 2000). Further, warnings that are placed directly on a product and/or the packaging have a higher noticeability rate (Wogalter et al., 1987; Frantz & Rhoades, 1993) because consumers are more likely to see such warnings when first examining the product prior to purchase. ANSI/NEMA Z535.4 provides general guidance on the placement of warnings, stating that warnings must be placed so they are “readily visible to the intended viewer” and will “alert the viewer to the hazard in time to take appropriate action.”  47 Similarly, both the Ad Hoc Task Group and section 5.3.6 of ASTM F963-23 require warnings to be conspicuous. Accordingly, the Commission proposes that the warning label identified in Figure 6 is positioned conspicuously on the product, such that it is visible clearly and, in its entirety, when the product is placed on the child.

For the product's packaging, to ensure that the label is in an area of the packaging that stands out and is visible, the Commission proposes that the warning label in Figure 6 must be placed in the principal display panel, which is defined in ASTM F963 as “the display panel for a retail package or container, bin, or vending machine that is most likely to be displayed, shown, presented, or examined under normal or customary conditions of display for retail sale.”

The Commission proposes to require that instructions are provided with all neck float products and that they must be easy to read and understand, and shall be in the English language, at a minimum, consistent with the Ad Hoc recommended language under § 1250.5(d)(2). These instructions must be printed on the product and provided separately, such as a user manual, and include information on assembly, installation, maintenance, cleaning, and use, where applicable. The instructions must explain how to check for adequate fit of the product to prevent the child from slipping through the center opening. Instructional literature provided with the product, but not printed on the product, must include all warnings specified above in section 1 on content. Any instructions provided in addition to those required in this section must neither contradict nor confuse the meaning of the required information, nor be otherwise misleading to the consumer.

For products with inflatable components, the Commission proposes that the instructional literature includes clear directions for testing the product for leaks. These directions are important for reducing the likelihood of the product losing air during use, as air loss may increase the amount deformation and center opening expansion. Absent these directions, caregivers are less likely to identify leaks in their products prior to the children being submerged in water.

The Commission assesses that these instructional literature requirements support the proposed performance requirements and may help some consumers to select, use, and maintain the products safely. Instructional literature, however, is likely to have limited effectiveness to address this hazard, as consumers using inflatable neck floats would need to remember and choose to follow the instructions every time they use the product, and it is reasonably foreseeable they will forego doing so for the reasons detailed above. Most neck floats involved in incidents provided instructional literature in the forms of user manuals and on-product labels, and many of the products were used contrary to the instructions, resulting in the children being submerged in water.

The Commission is proposing in § 1250.5(e) an anti-stockpiling provision to prevent firms from manufacturing or importing large quantities of noncompliant neck floats before the rule takes effect and seeks comment on this provision. Under this proposal, firms could not manufacture or import noncompliant products in a given month more than a rate of 105 percent of the base period. The base period is the average monthly manufacturing or import volume within the last 13 months of production that immediately precedes the month of promulgation of the final rule.

Neck float products have characteristics that make them ideal for firms seeking to stockpile, such as low inventory costs due to their small size (particularly for inflatable products before sale), durability, and low costs of production. Additionally, the new requirements may cause some firms to exit the market. Exiting firms would have an incentive to sell stockpiled neck floats to support the costs of switching to manufacturing another product. These firms would be relatively unconstrained by reputational concerns surrounding their sale of stockpiled non-compliant neck floats after the effective date of a final rule. Further, because many neck floats are sold primarily or exclusively on manufacturers' or importers' own websites, the responsible business practices of retailers that refuse to take noncompliant toys into their inventory, even before the effective date of a new safety regulation, would have little constraining effect on stockpiling by manufacturers and importers themselves. These firms could expect to sell their stockpiled noncompliant products even as other sellers limit their sales to compliant products.

Pursuant to section 106(c) of the CPSIA, Congress directed the Commission to “periodically review and revise the rules set forth under this section to ensure that such rules provide the highest level of safety for such products that is feasible.” 15 U.S.C. 2056b(c). Based on the staff's analysis provided in this NPR, the Commission preliminarily determines that the NPR is technically and economically feasible, and requests comment on this determination.

A proposed rule is technically feasible if it is capable of being done. For example, compliant products might already be on the market; or the technology to comply with the requirements might be commercially available; or existing products could be made compliant; or alternative practices, best practices, or operational changes would allow manufacturers to comply. See, e.g., 15 U.S.C. 1278a(d) (discussing lead limits). The Commission preliminarily concludes that the NPR's proposals meet technical feasibility criteria. No new or even emerging technology is needed to manufacture a compliant product.

In addition, though testing laboratories may need to procure additional equipment to accommodate the conditioning, buoyancy, and neck opening requirements, the tools required for those test methods are not proprietary or exclusive items and may be reasonably sourced from commercial providers. Of the testing tools proposed by the NPR, only the specified head probes are unique; however, staff were able to fabricate those probes using commercially available resources. Additionally, many of the test methods proposed by the NPR are already either included in CPSC mandatory standards or come from other previously published external safety standards.

The proposed rule is economically feasible because the cost of compliance would not threaten the viability of the industry. CPSC expects a significant economic effect on firms supplying inflatable neck floats and a de minimis impact on firms supplying inherently buoyant neck floats, which are more easily made compliant with the rule. The availability of inherently buoyant products that, CPSC staff assesses, are compliant or readily could be compliant with the proposed rule, demonstrates that the proposed rule is economically feasible.

Proposed section 1250.5 would incorporate by reference portions of ANSI/CAN/UL 12402-9, ANSI APSP ICC-16, ANSI/NEMA Z535.4-2023, ASTM F833-21 and ASTM F1967-19. The Office of the Federal Register (OFR) has regulations concerning incorporation by reference. 1 CFR part 51. Under those regulations, agencies must discuss, in the preamble to a final rule, ways in which the material the agency incorporates by reference is reasonably available to interested parties and how interested parties can obtain the material. In addition, the preamble to the final rule must summarize the material. 1 CFR 51.5(b)(3).

In accordance with the OFR regulations, section V of this preamble summarizes the provisions of ANSI/CAN/UL 12402-9, ANSI APSP ICC-16, ASTM F833-21, ASTM F1967-19 and ANSI/NEMA Z535.4-2023 that the Commission proposes to incorporate by reference into proposed § 1250.5. The standards are reasonably available to interested parties by permission of the relevant standards developing organization (SDO) to be viewed as a read-only document during the comment period on this NPR, at:

• https://www.surveymonkey.com/r/DQVJYMKforANSI/CAN/UL 12402-9,

• https://codes.iccsafe.org/content/ANSIAPSPICC162017/title-page for ANSI APSP ICC-16,

• https://www.surveymonkey.com/r/DQVJYMKforANSI/NEMA Z535.4-2023,

• https://www.astm.org/products-services/reading-room.html for ASTM F833-21, and

• https://www.astm.org/products-services/reading-room.html for ASTM F1967-19.

Interested parties can also schedule an appointment to inspect a copy of the standards at CPSC's Office of the Secretary, U.S. Consumer Product Safety Commission, 4330 East-West Highway, Bethesda, MD 20814, telephone: (301) 504-7479; email: cpsc-os@cpsc.gov . Alternatively, interested parties can purchase copies from the following sources:

(1) Pool and Hot Tub Alliance (PHTA), 1650 King Street, Suite 602, Alexandria, VA 22314; phone: (703) 838-0083; website: www.phta.org

(i) ANSI APSP ICC-16, American National Standard for Suction Outlet Fitting Assemblies (SOFA) for Use in Pools, Spas, and Hot Tubs, (approved August 18, 2017).

(2) Underwriters Laboratories (UL), 1250 Connecticut Avenue NW, Suite 520, Washington, DC 20036; phone: (202) 296-7840; website: www.ul.com.

(i) ANSI/CAN/UL 12402-9, Standard for Personal Flotation Devices—Part 9: Test Methods, (published February 11, 2021).

(3) National Electrical Manufacturers Association (NEMA), 1300 17th St. N, Arlington, VA 22209; phone: (703) 841-3200; website: www.nema.org.

(i) ANSI/NEMA Z535.4-23, American National Standard for Product Safety Signs and Labels (approved December 14, 2023).

(4) ASTM International (ASTM), 100 Barr Harbor Drive, P.O. Box C700, West Conshohocken, PA 19428-2959; phone: (610) 832-9585; website: www.astm.org .

(i) ASTM F833-21, Standard Consumer Safety Performance Specification for Carriages and Strollers, (approved June 15, 2021).

(ii) ASTM F1967-19, Standard Consumer Safety Specification for Infant Bath Seats, (approved May 1, 2019)

The Administrative Procedure Act (APA) generally requires that the effective date of a rule be at least 30 days after publication of the final rule. 5 U.S.C. 553(d). The Commission proposes a 180-day effective date for this rule. The rule would apply to all neck floats manufactured after the effective date. 15 U.S.C. 2058(g)(1).

Some neck floats may already comply with the proposed requirements; however, most neck floats would need to be redesigned, manufacturing equipment may need to be retooled, and all neck floats would require third-party testing to the new requirements. 15 U.S.C. 2063(a)(3). 48 Accordingly, to provide time to comply with the rule, to ensure adequate lab capacity to test and certify toys, and to spread the cost of compliance over a period of months, the Commission proposes to make this rule effective 180 days after publication of the final rule in the Federal Register .

The effective date of 180 days should be sufficient for firms to come into compliance, because the proposed tests are consistent with testing required in 16 CFR parts 1215, 1227, and 1450. For other proposed tests that are based on ANSI/CAN/UL 12402-9:2022, no unique tools will be required. For the neck opening testing, staff were able to fabricate head probes within a reasonable time using commercially available resources. Accordingly, CPSC expects that these laboratories are competent to conduct the required testing and obtain their International Organization for Standardization (ISO) accreditation and CPSC-acceptance updated in the normal course. The Commission invites comments, particularly from small businesses, regarding the proposed testing and the amount of time needed to come into compliance with a final rule.

The RFA requires that agencies review a proposed rule for the rule's potential economic impact on small entities, including small businesses. Section 603 of the RFA generally requires that agencies prepare an initial regulatory flexibility analysis (IRFA) and make the analysis available to the public for comment when the agency publishes an NPR, unless the rule would not have a significant economic impact on substantial number of small entities. 5 U.S.C. 603. The IRFA must describe the impact of the proposed rule on small entities and identify significant alternatives that accomplish the statutory objectives and minimize any significant economic impact of the proposed rule on small entities. The IRFA must also contain:

(1) a description of why action by the agency is being considered;

(2) a succinct statement of the objectives of, and legal basis for, the proposed rule;

(3) a description of and, where feasible, an estimate of the number of small entities to which the proposed rule will apply;

(4) a description of the projected reporting, recordkeeping and other compliance requirements of the proposed rule; and

(5) an identification to the extent practicable, of all relevant Federal rules which may duplicate, overlap or conflict with the proposed rule.

This proposed rule would have a significant economic impact on a substantial number of small U.S. entities, primarily from redesign costs in the first year that the final rule would be effective. A significant impact would occur for small companies whose products do not meet the proposed requirements.

Section I of this preamble explains why the Commission proposes to establish a mandatory rule for neck float and provides a statement of the objectives of, and legal basis for, the proposed rule. The proposed requirements in the NPR are more stringent than ASTM F963-23, which the Commission incorporated into the mandatory rule in 16 CFR part 1250, Safety Standard Mandating ASTM F963 for Toys, as described in sections IV and V of this preamble. The NPR addresses the known hazards presented by neck floats, discussed in section III of this preamble, that the current mandatory toy safety standard does not adequately address.

Section II of this preamble describes the products within the scope of the proposed rule, provides an overview of the market for neck floats and the use of these products in the U.S. This section provides additional details on the market for products within the scope of the rule.

The North American Industry Classification System (NAICS) defines product codes for U.S. firms. Firms that manufacture neck floats may be categorized under various NAICS product codes. Most of these firms likely fall under NAICS code such as 339930 Doll, Toy, and Game Manufacturing, 326190 Other Plastics Product Manufacturing, and 326199 All Other Plastic Product Manufacturing. Importers of these products could also vary among different NAICS codes, with a majority of the firms categorized under NAICS codes as wholesalers: 423920 Toy and Hobby Goods and Supplies Merchant Wholesalers, and 424610 Plastics Materials and Basic Forms and Shapes Merchant Wholesalers.

Currently, unlike inherently buoyant neck floats, the inflatable versions of these products are not available for purchase through larger retailers and retailers with physical store locations. Retailers of neck floats fall under NAICS codes 459120 Hobby, Toy, and Game Stores, 452210 Department Stores, 452310 General Merchandise Stores Including Warehouse Clubs and Supercenters, and 454390 Other Direct Selling establishments. Floatation products can be sold among varying retail channels focused on swimming or toddler products. Therefore, the NAICS codes listed in this IRFA for retailers, importers, and manufacturers are unlikely to be exhaustive.

Under the U.S. Small Business Administration (SBA) guidelines, a manufacturer, importer, and retailer of neck float products is categorized as “small” based on the SBA's size thresholds associated with the NAICS code. SBA uses the number of employees to determine whether a manufacturer or importer is a small business while SBA uses annual revenues to consider retailers. Based on 2021 Statistics of U.S. Businesses (SUSB) data, 49 and a review of publicly available data on annual revenues, CPSC estimated the number of firms classified as small for the most relevant NAICS codes. Table 6 and Table 7 provide the estimated number of small firms by each NAICS code. 50 CPSC estimates that a total of 19 small U.S. manufacturers and importers, and 27,260 small U.S. retailers, deal in neck floats.

The data indicated that all the manufacturers/importers of these products are considered to be small businesses. CPSC assesses that the total size of this market likely does not exceed $5 million in aggregate.

The NPR would require manufacturers and importers of neck floats to meet performance, warning label, and instructional material requirements, and to conduct third-party testing to demonstrate compliance. Section V of this preamble describes the performance, warning label and instructional material requirements.

Manufacturers must demonstrate that they have met the performance requirements of the rule by providing a children's product certificate. As specified in 16 CFR part 1109, suppliers who are not the original manufacturer, such as importers, may rely on the testing or certification suppliers provide, as long as the requirements in part 1109 are met. Manufacturers and importers are required to furnish certificates to retailers and distributors (section 14(g)(3) of the CPSA). Retailers are not required to third-party test the children's products that they sell unless they are also the manufacturer or importer. Under section 14 of the CPSA, manufacturers, importers, and private labelers of neck float products would be required to certify, based on a test of each product by an ISO-accredited, CPSC-accepted third party conformity assessment body, that their products comply with the requirements of the proposed rule. Each children's product certificate of compliance must identify the third-party conformity assessment body that conducted the testing upon which the certificate depends.

CPSC has not identified any other Federal rules that duplicate, overlap, or conflict with the proposed rule.

The Commission expects small firms of inflatable products to incur a significant cost from redesign/retooling, and material changes as a result of the proposed rule. If the rule is finalized, small manufacturers would incur one-time costs related to redesign, retooling, testing, labeling/literature updates and ongoing certification costs to comply with the rule for product lines that currently do not meet the proposed requirements. Generally, CPSC considers an impact to be potentially significant if it exceeds 1 percent of a firm's revenue. Based on the aforementioned costs, CPSC expects approximately 19 small firms to incur a cost that exceeds 1 percent of the annual revenue of the firm. The Commission seeks comments from small firms stating their annual revenue and estimated compliance costs.

Staff assesses that a large majority of inflatable neck float products cannot, as currently constructed, meet the proposed requirements of the rule. These products will require redesign, retooling and additional components to comply with the proposed rule. Major design changes are needed to meet the performance requirements related to durability, buoyancy, and the neck opening. The Commission anticipates that design and/or material changes, which may include modifying the shape of the neck float or modifying the structure by transitioning between or combining inherently buoyant and inflatable flotation components, would be required to the entirety of the product. The potential product costs are therefore the incremental cost for the material change and the one-time labor cost to perform the redesign and retooling. Inherently buoyant neck floats are expected to incur significantly lower costs.

CPSC estimates that the incremental costs of the material change to be $6 per product based on a comparison of retail prices of inflatable neck floats with non-inflatable neck floats. This assumes that most inherently buoyant neck floats are likely to meet the proposed performance standards without costly modification, while inflatable neck floats are likely not to comply with the performance requirements. CPSC assumes the observed premium of 20 percent of retail price  51 for non-inflatables represents the incremental cost of material between the types. CPSC estimates a range of 3 to 4 months of labor by a material engineer would be required for neck float redesign. Data from the Bureau of Labor Statistics (BLS) indicates that the average full hourly compensation rate of a material engineer, which includes wages  52 and benefits, 53 is $79.64 per hour. 54 Because neck float designs are very similar across product models and firms, CPSC assesses that firms would be able to incorporate design changes across all products lines that the manufacturer offers without additional effort required for each product line. CPSC staff estimates a range of possible redesign costs of $38,227 to $50,970 per firm. 55

Some additional costs might be incurred related to updating and/or adding labels/literature. Generally, the costs associated with modifying or adding warning labels or instructional literature are low on a per unit basis because manufacturers of these products are already required to provide labels with their product. Nearly every manufacturer also provides some literature with their product. A one-time update is expected to be less than $0.01 in cost per product sold. Therefore, CPSC expects the incremental cost related to the labeling and instructional literature provisions to be de minimis.

The NPR would require manufacturers and importers of neck floats to comply with performance requirements and demonstrate compliance by required third-party testing. As specified in 16 CFR part 1109, entities that are not manufacturers of children's products, such as importers, may rely on the certificate of compliance provided by others.

Neck float manufacturers could incur some additional costs for certifying compliance with the proposed rule. The certification of must be completed by a third party conformity assessment body. Based on quotes from testing laboratories for ASTM F963 testing services, the cost of certification testing would range from $130 to $250 per product sample. For neck floats, the average number of models per firm is two, based on manufacturer websites, which would equate to a testing and certification cost range of $260 to $500 per firm.

The Commission considered four alternatives to the proposed rule that could reduce the impact on small entities: (1) not establishing a mandatory standard for neck floats, (2) establishing an information and education campaign for neck floats, (3) incorporating existing international standards without modification, and (4) setting a later effective date.

Section 106 of the CPSIA requires CPSC to promulgate toy safety standards that are “more stringent than” the applicable voluntary standard if the Commission determines that more stringent requirements would further reduce the risk of injury associated with the product, as well as to periodically review and revise the rules set forth under section 106 to ensure that such rules provide the highest level of safety for such products that is feasible. 15 U.S.C. 2056b(c), (d). Given CPSC's statutory mandate, and continuing incidents associated with neck float as described in section III of this preamble, the Commission has determined that it must address the safety of children using neck float to ensure that the risk of drowning is mitigated. While failing to promulgate a mandatory standard for neck floats would have no direct impact on U.S. small businesses, it would allow unsafe products to remain on the market and ignore a known drowning hazard to children, with reported fatalities. After preliminarily determining that the existing requirements in ASTM F-963 are inadequate, in section IV, the Commission is moving forward with this rulemaking to comply with its statutory mandate and prioritize the safety of children by mitigating potential child slip-throughs and submergence in water associated with the use of neck floats.

CPSC could create an information and education campaign to better alert parents and caregivers regarding the drowning hazard associated with neck floats. This would require consumer outreach efforts like advertising and marketing related to the hazards. This alternative could be implemented independent of regulatory action. Although information campaigns may be helpful, there have been deaths associated with these products while CPSC was conducting extensive drowning prevention educational campaigns. This demonstrates that information and education alone are inadequate to address the drowning hazard associated with neck floats. Therefore, the Commission preliminary finds that while information campaigns might be helpful, performance standards would be more effective in preventing deaths associated with the use of neck floats.

The Commission could adopt BS EN 13138-1:2021 without modifications, discussed above in section V, because it has similar requirements as the proposed rule. Some neck float products currently available in the U.S. are advertised as meeting these requirements and as a result these products would be unaffected by proposed requirements. Adopting this alternative would lower the number of firms affected by the proposed rule. However, the international standards do not include specifications for slip-through hazards associated with neck floats. Therefore, this alternative is unlikely to prevent drowning related injuries to children who may slip through neck floats.

To reduce burden on small businesses, the Commission could adopt an effective date later than 180 days after Federal Register publication, to spread the cost of compliance over a longer period. Although some neck floats already comply with most of the proposed requirements, most neck floats (primarily inflatable neck floats) would need to be redesigned, and all neck floats would require third-party testing to the new requirements. In this case, as described above, 180 days is reasonable for firms to comply with the rule, and many labs are already CPSC-accepted to conduct the same or similar testing and products expected to already be compliant are currently available for purchase.

The Commission's regulations address whether the agency is required to prepare an environmental assessment or an environmental impact statement. Under these regulations, certain categories of CPSC actions normally have “little or no potential for affecting the human environment,” and therefore do not require an environmental assessment or an environmental impact statement. Safety standards providing performance and labeling requirements for consumer products come under this categorical exclusion. 16 CFR 1021.5(c)(1). The NPR falls within the categorical exclusion.

This proposed rule for neck floats contains information collection requirements that are subject to public comment and review by the Office of Management and Budget (“OMB”) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). In this document, pursuant to 44 U.S.C. 3507(a)(1)(D), we set forth:

• Title for the collection of information;

• Summary of the collection of information;

• Brief description of the need for the information and the proposed use of the information;

• Description of the likely respondents and proposed frequency of response to the collection of information;

• Estimate of the burden that shall result from the collection of information; and

• Notice that comments may be submitted to the OMB.

Title: Safety Standard for Toys: Requirements for Neck Floats.

Description: As described in section V of this preamble, the proposed rule would require new labeling and instructions for neck floats toys. The NPR proposes that neck float meet the proposed requirements of § 1250.5, which are summarized in section V of this preamble.

Section 5 of ASTM F963-23 contains requirements for marking, labeling, and instructional literature of children's toys in general. These requirements fall within the definition of “collection of information,” as defined in 44 U.S.C. 3502(3). CPSC will request an OMB control number for the proposed collection.

Description of Respondents: Persons who manufacture or import neck floats.

Estimated Burden: We estimate the burden of this collection of information as follows:

This estimate is based on the following: CPSC estimates there are 20 suppliers that would respond to this collection annually, and that the majority of these entities would be considered small businesses. CPSC assumes that on average each respondent that reports annually would respond once, as product models for neck floats are brought to market and new labeling and instruction materials are created, for a total of 20 responses annually (20 respondents × 1 responses per year). CPSC assumes that on average it will take 1 hour for each respondent to create the required label and one hour for them to create the required instructions, for an average response burden of 2 hours per response. Therefore, the total burden hours for the collection are estimated to be 40 hours annually (20 responses × 2 hours per response = 40 total burden hours).

CPSC estimates the hourly compensation for the time required to create and update labeling and instructions is $41.76. 56 Therefore, the estimated annual cost of the burden requirements is $1,670 ($41.76 per hour × 40 hours = $1,670.40). No operating, maintenance, or capital costs are associated with the collection. Based on this analysis, the proposed information collection would impose a burden to industry of 40 hours at a cost of $1,670 annually.

In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d), we will submit the information collection requirements of this proposed rule to the OMB for review. Interested persons are requested to submit comments regarding information collection by January 21, 2025, (see the ADDRESSES section at the beginning of this notice). Pursuant to 44 U.S.C. 3506(c)(2)(A), we invite comments on:

Whether the collection of information is necessary for the proper performance of the CPSC's functions, including whether the information will have practical utility;

The accuracy of the CPSC's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;

Ways to enhance the quality, utility, and clarity of the information to be collected;

Ways to reduce the burden of the collection of information on respondents, including the use of automated collection techniques, when appropriate, and other forms of information technology; and

The estimated burden hours associated with label modification, including any alternative estimates.

Section 26(a) of the CPSA, 15 U.S.C. 2075(a), states that when a consumer product safety standard is in effect and applies to a product, no state or political subdivision of a state may either establish or continue in effect a standard or regulation that prescribes requirements for the performance, composition, contents, design, finish, construction, packaging, or labeling of such product dealing with the same risk of injury unless the state requirement is identical to the federal standard. Section 106(f) of the CPSIA deems rules issued under that provision “consumer product safety standards.” Therefore, once a rule issued under section 106 of the CPSIA takes effect, it will preempt in accordance with section 26(a) of the CPSA.

Section 14(a) of the CPSA imposes the requirement that products subject to a consumer product safety rule under the CPSA, or to a similar rule, ban, standard, or regulation under any other act enforced by the Commission, must be certified as complying with all applicable CPSC-enforced requirements. 15 U.S.C. 2063(a). Section 14(a)(2) of the CPSA requires that certification of children's products subject to a children's product safety rule be based on testing conducted by a CPSC-accepted third party conformity assessment body. Section 14(a)(3) of the CPSA requires the Commission to publish an NOR for the accreditation of third-party conformity assessment bodies (or laboratories) to assess conformity with a children's product safety rule to which a children's product is subject. The proposed rule would create a new 16 CFR 1250.5 as part of 16 CFR part 1250. If issued as a final rule, the proposed rule would be a children's product safety rule that requires the issuance of a NOR.

16 CFR part 1112 establishes requirements for accreditation of third-party conformity assessment bodies to test for conformity with a children's product safety rule in accordance with section 14(a)(2) of the CPSA. Part 1112 also codifies all of the NORs issued previously by the Commission. To meet the requirement that the Commission issue an NOR for the proposed standard, the Commission proposes to add neck floats to the list of children's product safety rules for which CPSC has issued an NOR.

Testing laboratories applying for acceptance as a CPSC-accepted third party conformity assessment body to test to the standard for neck floats would be required to meet the third-party conformity assessment body accreditation requirements in part 1112. When a laboratory meets the requirements as a CPSC-accepted third party conformity assessment body, the laboratory can apply to CPSC to have 16 CFR 1250.5, Safety Standard or Toys: Requirements for Neck Floats, included within the laboratory's scope of accreditation of CPSC safety rules listed for the laboratory on the CPSC website at: https://www.cpsc.gov/cgi-bin/labsearch/.

Testing laboratories should not be adversely impacted as a result of this rule. CPSC expects that laboratories will be able to test to this proposed rule in a short time period. Furthermore, no laboratory is required to provide testing services. The only laboratories that are expected to provide such services are those that anticipate receiving sufficient revenue from the mandated testing to justify procuring the testing equipment and obtaining accreditation.

The Commission requests comments on the proposed rule to promulgate a mandatory standard for neck floats under section 106 of the CPSIA. During the comment period, ASTM F963-23 is available as a read-only document at: http://www.astm.org/cpsc.htm. Comments should be submitted in accordance with the instructions in the ADDRESSES section at the beginning of this document.

CPSC requests comments on all aspects of this rulemaking and specifically comment on the following topics:

1. The proposed rule defines a “neck float” as “an article, whether inflatable or not, that encircles the neck, supports the weight of the child by securing around the neck (such as by fastening, tightening, or other methods), and is used as an instrument of play in water environments including sinks, baths, paddling pools and swimming pools, and is intended for use by children up to and including 4 years of age.” Should the proposed rule use a different definition of neck floats?

1. Are there any other products that should be included within the scope of this NPR as neck floats?

2. Based on FDA's warning about the risk of death due to suffocation, strain, and injury to a baby's neck, should the Commission strengthen the proposed performance requirements to address other hazards, or should the Commission promulgate alternative performance requirements?

1. Are there any other performance requirements CPSC should consider to address the hazards associated with slipping through the product as a result of deflation?

1. Are there any other performance requirements CPSC should consider to address the hazards associated with slipping through the product without deflation?

1. Are there any other performance requirements CPSC should consider to address the hazards associated with restraint system failures?

2. Should CPSC consider performance requirements to include secondary attachment systems? Please, provide details of any secondary attachment system that should be considered.

1. Are there any other performance requirements CPSC should consider to address the hazards associated with submergence during the use of the product without slipping through?

1. Does the proposed internal air pressure of 0.1 PSIG adequately simulate use conditions to address the hazard associated with deflation?

2. Are the proposed neck opening performance requirements adequate to address the hazards associated with slip-through?

1. Are the proposed warnings adequate to address the hazards associated with neck floats? Should CPSC consider additional warnings? Should other warning formats be considered?

2. Are the proposed instructional material requirements adequate to address the hazards associated with neck floats? Should CPSC consider requiring additional information to be provided?

1. Significant impact. Is CPSC's estimated cost of redesign to achieve compliance accurate? If not, please provide additional information and support for your proposed correction. Also, do the estimated costs represent more than one percent of annual revenue for individual small U.S. manufacturers and importers?

2. Testing costs. Will third party testing costs for neck floats increase as a result of this requirements in this NPR, and if so, by how much? Are test labs currently accredited to test for ASTM F963-23 equipped to test neck floats in accordance with this proposal?

3. Effective date of 180 days. How much time is required to come into compliance with a final rule (including product compliance and third-party testing)? Please provide supporting data with your comment, particularly from small businesses.

4. Anti-Stockpiling Provision. Should CPSC finalize with the anti-stockpiling provision as proposed, or is it not unnecessary for neck floats? If an anti-stockpiling provision is included, are there any changes that should be included? Please provide supporting data with your comment, particularly from small businesses.

5. Alternatives to reduce the impact on small businesses. Are there any alternatives to the rule that could reduce the impact on small businesses without reducing safety? Please provide supporting data with your comment, particularly addressing small businesses.

1. Are the proposed requirements in this NPR feasible, both technically and economically?

2. What would be the total cost to industry of implementing this rule? Please be specific about labor and/or materials costs to redesign products, and costs of third-party testing.

3. Will complying with this rule increase the costs of production or the retail price of neck floats? Why? By how much?

For the reasons discussed in the preamble, the Commission proposes to amend 16 CFR parts 1112 and 1250 as follows:

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 761(a) of the Internal Revenue Code (Code) issued by the Secretary of the Treasury or her delegate (Secretary) under the express authority granted under sections 761(a), 6031(a), 6417(d) and (h), and 7805(a) of the Code (proposed regulations).

Section 761(a) provides, in part, an express grant of regulatory authority for section 761(a) stating, “[u]nder regulations the Secretary may, at the election of all the members of an unincorporated organization, exclude such organization from the application of all or a part of this subchapter.”

Section 6031(a) provides an express grant of a regulatory authority for the Secretary to prescribe in forms or regulations partnership reporting information required “for the purpose of carrying out the provisions of subtitle A.”

Section 6417(d) provides several express delegations of authority to the Secretary to enforce requirements for elective payments of applicable credits under section 6417 and recapture excessive payments. Section 6417(h) requires the Secretary to issue regulations or other guidance as may be necessary to carry out the purposes of section 6417, including guidance to ensure that the amount of the payment or deemed payment made under this section is commensurate with the amount of the credit that would be otherwise allowable (determined without regard to section 38(c)).

Finally, section 7805(a) authorizes the Secretary to “prescribe all needful rules and regulations for the enforcement of [the Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue.”

Section 6417 was added to the Code by section 13801(a) of Public Law 117-169, 136 Stat. 1818, 2003 (August 16, 2022), commonly referred to as the Inflation Reduction Act of 2022 (IRA). Section 6417 allows an “applicable entity” (including tax-exempt organizations, the District of Columbia, State and local governments, Indian Tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, and certain agencies and instrumentalities) to make an election to treat an “applicable credit” (as defined in section 6417(b)) determined with respect to such entity as making a payment by such entity against the tax imposed by subtitle A of the Code, for the taxable year with respect to which such credit is determined, equal to the amount of such credit. Section 6417 also provides special rules relating to partnerships and directs the Secretary to provide rules for making elections under section 6417. Section 13801(g) of the IRA provides that section 6417 applies to taxable years beginning after December 31, 2022.

On March 11, 2024, the Treasury Department and the IRS published in the Federal Register (88 FR 40528) final regulations (TD 9988) providing guidance on the section 6417 elective payment election (section 6417 regulations). Section 1.6417-2(a)(1)(iv) provides that partnerships are not applicable entities described in section 6417(d)(1)(A) or § 1.6417-1(c), regardless of how many of their partners are themselves applicable entities. Accordingly, any partnership making an elective payment election must be an electing taxpayer (as defined in § 1.6417-1(g)), and, as such, the only applicable credits with respect to which the partnership could make an elective payment election would be credits determined under sections 45Q, 45V, and 45X for the time periods allowed in section 6417(d). However, § 1.6417-2(a)(1)(iii) provides that if an applicable entity is a co-owner in an applicable credit property (as defined in § 1.6417-1(e)), through an organization that has made a valid election under section 761(a) (section 761(a) election) to be excluded from the application of the partnership tax rules of subchapter K of chapter 1 of the Code (subchapter K), then the applicable entity's undivided ownership share of the applicable credit property is treated as a separate applicable credit property owned by such applicable entity. As a result, the applicable entity may make an elective payment election for the applicable credit(s) determined with respect to such applicable credit property.

Also on March 11, 2024, the Treasury Department and the IRS published in the Federal Register (89 FR 17613) proposed amendments (REG-101552-24) to the regulations under section 761(a) to carry out the purposes of section 6417 (March 2024 proposed regulations). Generally, the March 2024 proposed regulations would have amended certain provisions of § 1.761-2 to provide that unincorporated organizations meeting certain requirements (applicable unincorporated organizations) are eligible for certain modifications to the existing requirements for making a section 761(a) election.

Concurrently with the publication of these proposed regulations, the Treasury Department and the IRS are publishing in the Rules and Regulations section of this edition of the Federal Register a Treasury decision (TD 10012, RIN 1545-BR09) adopting certain provisions of § 1.761-2 of the March 2024 proposed regulations as final regulations under section 761(a) (final regulations). The provisions of § 1.761-2 of the final regulations are explained in greater detail in the preamble to the final regulations. The provisions of § 1.761-2 in effect as of January 19, 2025, are referred to in this preamble as “revised § 1.761-2.”

Section 761(a) provides, in part, that under regulations the Secretary may, at the election of all of the members of an unincorporated organization, exclude such organization from the application of all or part of subchapter K if the organization is availed of: (1) for investment purposes only and not for the active conduct of a business, (2) for the joint production, extraction, or use of property, but not for the purpose of selling services or property produced or extracted, or (3) by dealers in securities for a short period for the purpose of underwriting, selling, or distributing a particular issue of securities, provided that the income of the members of the organization may be adequately determined without the computation of partnership taxable income.

Unincorporated organizations seeking to make an election to be excluded from the application of subchapter K so that one or more of their members can make an election under section 6417 are likely to be availed of for the purposes listed in section 761(a)(2), that is, for the joint production, extraction, or use of property, but not for the purpose of selling services or property produced or extracted. Pursuant to the authority in section 761(a), revised § 1.761-2(a)(3) provides additional requirements for an unincorporated organization to elect to be excluded from the application of subchapter K under section 761(a)(2). Specifically, revised § 1.761-2(a)(3) requires that the participants in the joint production, extraction, or use of property: (i) own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights (co-ownership requirement), (ii) reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used, and (iii) do not jointly sell services or the property produced or extracted (joint marketing requirement), although each separate participant may delegate authority to sell the participant's share of the property produced or extracted for the time being for the participant's account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year.

The final regulations modify the co-ownership and joint marketing requirements for “applicable unincorporated organizations.” Under revised § 1.761-2(a)(4)(ii), an applicable unincorporated organization is defined as an unincorporated organization (1) that is owned, in whole or in part, by one or more applicable entities, as defined in section 6417(d)(1)(A) and § 1.6417-1(c), (2) the members of which enter into a joint operating agreement in which the members reserve the right separately to take in kind or dispose of their pro rata shares of any property produced, extracted, or used, and any associated renewable energy credits or similar credits, (3) that, pursuant to the joint operating agreement, is organized exclusively to own and operate applicable credit property (as defined in § 1.6417-1(e)), (4) for which one or more of the applicable entities will make an elective payment election under section 6417(a) for the applicable credits determined with respect to its share of the applicable credit property, (5) the members of which are able to compute their income without the necessity of computing partnership taxable income, and (6) which is not a syndicate, group, pool, or joint venture which is classifiable as an association, or any group operating under an agreement which creates an organization classifiable as an association.

Revised § 1.761-2(b) provides rules for making a section 761(a) election. Revised § 1.761-2(b)(2)(i) generally provides that a section 761(a) election must be made in a statement attached to, or incorporated in, a properly executed partnership return, Form 1065, U.S. Return of Partnership Income, which must contain, in lieu of the information required by Form 1065 and the instructions relating thereto, the following information: the name or other identification and the address of the organization together with information on the return, or in the statement attached to the return, showing the names, addresses, and identification numbers of all the members of the organization; a statement that the organization qualifies under § 1.761-2(a)(1) and either § 1.761-2(a)(2) or (3) (taking into account revised § 1.761-2(a)(4), as applicable); a statement that all of the members of the organization elect to be excluded from all of subchapter K; and a statement indicating where a copy of the agreement under which the organization operates is available (or if the agreement is oral, from whom the provisions of the agreement may be obtained).

If an unincorporated organization does not make the section 761(a) election provided in this manner, revised § 1.761-2(b)(2)(ii) provides (as it provided before the final regulations) that the organization will nevertheless be deemed to have made the election if it can be shown from all the surrounding facts and circumstances that it was the intention of the members of such organization at the time of its formation to secure exclusion from all of subchapter K beginning with the first taxable year of the organization (deemed election rule). Although the following facts are not exclusive, the requisite intent may be indicated if (1) at the time of the formation of the organization there is an agreement among the members that the organization be excluded from the application of subchapter K beginning with the first taxable year of the organization, or (2) the members of the organization owning substantially all of the capital interests report their respective shares of the items of income, deductions, and credits of the organization on their respective returns (making such elections as to individual items as may be appropriate) in a manner consistent with the exclusion of the organization from subchapter K beginning with the first taxable year of the organization.

Section 6417(d)(5) provides that as a condition of, and prior to, any amount being treated as a payment that is made by an applicable entity, the Secretary may require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, improper payments, or excessive payments. Section 6417(h) requires the Secretary to issue regulations or other guidance to ensure that the amount of a payment or deemed payment made under section 6417 is commensurate with the amount of the credit that would be otherwise allowable.

The Treasury Department and the IRS have determined that additional guidance outlining certain administrative requirements is needed to comply with these statutory directives. After an unincorporated organization makes a section 761(a) election, each member may increase or reduce (even to zero) its interest in the unincorporated organization without affecting the validity of the section 761(a) election. As a result, the information submitted to the IRS in connection with an organization's section 761(a) election, as required under revised § 1.761-2(b), can become inaccurate at any time without notice to the IRS. This lack of reliable and accurate information about the applicable entity owners (if any) of an applicable unincorporated organization constrains the IRS's ability to ensure that the amount of payments or deemed payments made under section 6417 are commensurate with the amount of applicable credits that would otherwise be allowable, as directed under section 6417(h).

This problem is compounded by the deemed election rule in revised § 1.761-2(b)(2)(ii). A deemed election obscures any record of an organization's members (including any applicable entities) that are subject to a section 761(a) election and can be discovered by the IRS only upon examination. In contrast, a written election is a relatively simple and effective means of identifying any applicable entity owners of applicable credit property held through an applicable unincorporated organization with a valid section 761(a) election. Moreover, members of an organization who form an entity or enter into long-term contracts together are especially likely to know that their activities could create a partnership subject to subchapter K. The Treasury Department and the IRS have concerns that deemed elections are not appropriate in such situations, especially when (as is anticipated to be typical) applicable entities intend to make section 6417 elections with respect to applicable credit property owned by an unincorporated organization, as such elections are generally permitted only when the organization has a valid section 761(a) election.

The proposed regulations would impose new requirements on applicable unincorporated organizations whose section 761(a) elections would not be valid without the application of revised § 1.761-2(a)(4)(iii) (specified modifications for applicable unincorporated organizations). Proposed § 1.761-2(a)(4)(iv)(A) would provide that a specified applicable unincorporated organization's section 761(a) election will terminate as a result of a “terminating transaction.” A terminating transaction is the acquisition or disposition of an interest in a specified applicable unincorporated organization, other than as the result of a transfer between a disregarded entity (as defined in § 1.6417-1(f)) and its owner since such transfer does not change the identity of the applicable entity for purposes of section 6417. See § 1.6417-2(a)(1)(ii); see also proposed § 1.6417-1(f) contained in the notice of proposed rulemaking Entities Wholly Owned by Indian Tribal Governments (REG-113628-21) published in the Federal Register (89 FR 81871) on October 9, 2024, which alters the definition of disregarded entities for purposes of section 6417.

Terminating transactions will not terminate an applicable unincorporated organization's section 761(a) election if the organization meets the requirements to make a new section 761(a) election and makes such an election not later than the time prescribed by § 1.6031(a)-1(e) (including extensions thereof) for filing a partnership return with respect to the period of time that would have been the organization's taxable year if, after the taxable year with respect to which the organization first made the section 761(a) election, the organization continued to have taxable years and such taxable years were determined by reference to the taxable year in which the organization made the section 761(a) election (hypothetical partnership taxable year). Such election will protect the organization's section 761(a) election against all terminating transactions in a hypothetical year only if it contains, in addition to the information required by § 1.761-2(b), information about every terminating transaction that occurred in the hypothetical partnership taxable year, including the parties thereto and the interest(s) transferred. If a new election is not timely made, the section 761(a) election would terminate on the first day of the taxable year beginning after the hypothetical partnership taxable year in which one or more terminating transactions occurred. Proposed § 1.761-2(a)(5)(iv) would add Example 4 to illustrate this new rule. These provisions are inapplicable to an organization that is no longer eligible to elect to be excluded from the application of subchapter K. When an organization becomes ineligible to make a section 761(a) election, the organization's section 761(a) election automatically terminates, and the organization must begin complying with the requirements of subchapter K.

The proposed regulations would also clarify that the deemed election rule in § 1.761-2(b)(2)(ii) does not apply to specified applicable unincorporated organizations. This change is necessary to ensure that an unincorporated organization cannot benefit from the modifications in revised § 1.761-2(a)(4)(iii) without providing written information to the IRS about its members. The change also ensures that a specified applicable unincorporated organization that terminates as the result of a terminating transaction cannot have its election restored without making a new election in writing. However, if such an organization can make a valid section 761(a) election without the application of either of the specified modifications in revised § 1.761-2(a)(4)(iii), the organization may be deemed to make such an election under the deemed election rule.

In addition, the proposed regulations would clarify that an applicable unincorporated organization making a section 761(a) election must submit all information required by the instructions to Form 1065, U.S. Return of Partnership Income, for making a section 761(a) election. This requirement is intended to ensure that the organization making a section 761(a) election provides all of the information necessary for the IRS to properly administer section 6417 with respect to applicable unincorporated organizations making a section 761(a) election.

The proposed regulations would also update the procedure for obtaining permission to revoke a section 761(a) election. Prior to revision in the final regulations, § 1.761-2(b)(3) provided that taxpayers could revoke a section 761(a) election by submitting an application for permission to revoke a section 761(a) election to the Commissioner of Internal Revenue, Attention: T:I, Washington, DC 20224, no later than 30 days after the beginning of the first taxable year to which the revocation is to apply. Though this language did not define what the application would include, it historically has been interpreted to mean a private letter ruling request. However, the language in § 1.761-2(b)(3) was imprecise, lists an incorrect address, and was removed by the final regulations. The proposed regulations would clarify that such an application must be made by submitting a letter ruling request that complies with the requirements of Rev. Proc. 2024-1 or successor guidance. This language would ensure that the process for making this application is up-to-date and clear. Taxpayers may continue to submit applications for permission to revoke an election by requesting a private letter ruling and can rely on the process in Revenue Procedure 2024-1 or successor guidance prior to the date regulations finalizing these proposed regulations are published in the Federal Register .

These proposed regulations are proposed to apply to taxable years ending on or after November 20, 2024.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

These proposed regulations mention reporting and recordkeeping requirements that must be satisfied for unincorporated organizations to make and maintain an election out of subchapter K. These collections of information are generally used by the IRS for tax compliance purposes and by taxpayers to facilitate proper reporting and recordkeeping. The likely respondents to these collections are businesses and tax-exempt organizations.

These proposed regulations would also require unincorporated organizations to provide all information required by the instructions to Form 1065 for making a section 761(a) election. This reporting requirement will be approved by OMB under 1545-0123 for business filers and 1545-0047 for tax-exempt organizations in accordance with the PRA procedures in 5 CFR 1320.10.

These proposed regulations would include recordkeeping requirements for certain unincorporated organizations to track changes in ownership of interests in each such organization. The organizations can maintain these records in any manner they deem appropriate. The recordkeeping is needed to determine whether a new written section 761(a) election must be filed with the IRS. IRS will seek OMB approval under a new OMB Control Number (1545-NEW) for the burden on business filers and tax-exempt organizations. The associated burden for the recordkeeping is estimated as follows:

Estimated number of respondents: 1,000.

Estimated average annual burden per response: 1 hour.

Estimated total annual reporting burden: 1,000 hours.

The recordkeeping in this proposed rulemaking has been submitted to OMB for review in accordance with the PRA under OMB Control Number 1545-NEW. Commenters are strongly encouraged to submit public comments electronically. Written comments and recommendations for the proposed information collection should be sent to www.reginfo.gov/public/do/PRAMain, with copies to the IRS. Find this particular information collection by selecting “Currently under Review—Open for Public Comments” then by using the search function. Submit electronic submissions for the proposed information collection to the IRS via email at pra.comments@irs.gov (indicate REG-116017-24 on the Subject line). Comments on the collection of information should be received by January 21, 2025. Comments are specifically requested concerning: whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility; the accuracy of the estimated burden associated with the proposed collection of information; how the quality, utility, and clarity of the information to be collected may be enhanced; how the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) (RFA) imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq. ) and that are likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a proposal is not likely to have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires the agency to present an initial regulatory flexibility analysis (IRFA) of the proposed rule. The Treasury Department and the IRS have not determined whether the proposed rule, when finalized, will likely have a significant economic impact on a substantial number of small entities. This determination requires further study. However, because there is a possibility of significant economic impact on a substantial number of small entities, an IRFA is provided in these proposed regulations. The Treasury Department and the IRS invite comments on both the number of entities affected and the economic impact on small entities.

Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel of for the Office of Advocacy of the Small Business Administration for comment on its impact on small business.

As discussed in this preamble, the proposed regulations are intended to ensure that each section 761(a) election by a specified applicable unincorporated organization provides all of the information necessary for the IRS to comply with the directives of section 6417(d) and (h).

The RFA directs agencies to provide a description of, and where feasible, an estimate of, the number of small entities that may be affected by the proposed rules, if adopted. The Small Business Administration's Office of Advocacy estimates in its 2024 Frequently Asked Questions that 99.9 percent of American businesses meet its definition of a small business. The applicability of these proposed regulations does not depend on the size of the business, as defined by the Small Business Administration. As described more fully in the preamble to these proposed regulations and in this IRFA, section 761(a) and these proposed regulations may affect a variety of different entities across several different industries as there are 12 different applicable credits for which an elective payment election under section 6417(a) may be made. There is uncertainty as to the exact number of small businesses within this group. The current estimated number of respondents to the section 6417 regulations is 20,000 taxpayers, and it is likely that a fraction of that number would be respondents to these proposed regulations.

The Treasury Department and the IRS expect to receive more information on the impact on small businesses through comments on this proposed rule and again when taxpayers start to make the section 761(a) election using the guidance and procedures provided in the final regulations and these proposed regulations.

The proposed regulations would require certain applicable unincorporated organizations to submit section 761(a) elections in writing more frequently than they otherwise would have (though no more than once per year). In addition, a specified applicable unincorporated organization will be responsible for identifying any transactions involving ownership interests therein. Applicable unincorporated organizations that make a section 761(a) election will have administrative costs related to reading and understanding the rules as well as recordkeeping and reporting requirements. The costs will vary across different-sized entities and across the type of project(s) in which such entities are engaged.

Although the Treasury Department and the IRS do not have sufficient data to determine precisely the likely extent of the increased costs of compliance, the estimated burdens of complying with the recordkeeping and reporting requirements are described in the Paperwork Reduction Act section of the preamble.

The Treasury Department and the IRS considered alternatives to the proposed regulations. For example, in adopting the terminating transaction rules, the Treasury Department and the IRS considered requiring only the parties to a transaction involving an interest in a specified applicable unincorporated organization to report such transaction. However, the Treasury Department and the IRS decided that such an option would increase the opportunity for duplication, fraud, improper payments, or excessive payments under section 6417. Section 6417(d)(5) specifically authorizes the IRS to require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, improper payments, or excessive payments under section 6417 as a condition of, and prior to, any amount being treated as a payment which is made by an applicable entity under section 6417. As described in the preamble to these proposed regulations, these proposed rules carry out that congressional intent by ensuring that every member of a specified applicable unincorporated organization is informed about all transactions involving interests in the specified applicable unincorporated organization that could affect the amount or owner of any payments under section 6417.

Comments are requested on the requirements in the proposed regulations, including specifically whether there are less burdensome alternatives that do not increase the risk of duplication, fraud, improper payments, or excessive payments under section 6417.

Section 202 of the Unfunded Mandate Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial, direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian Tribal governments, and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. This proposed rule does not have substantial direct effects on one or more federally recognized Indian tribes and does not impose substantial direct compliance costs on Indian Tribal governments within the meaning of the Executive order.

Nevertheless, on April 5, 2024, the Treasury Department and the IRS held a consultation with Tribal leaders requesting assistance in addressing questions related to the section 761(a) proposed rules published on March 11, 2024, which helped inform the development of these proposed regulations.

Executive Order 14112 (Reforming Federal Funding and Support for Tribal Nations to Better Embrace Our Trust Responsibilities and Promote the Next Era of Tribal Self-Determination) reaffirms the executive branch's support for Tribal self-determination as the most effective policy for the economic growth of Tribal Nations and the economic well-being of Tribal citizens. Executive Order 14112 requires agency heads to take certain actions, consistent with applicable law and to the extent practicable, to increase access to “Federal funding and support programs for Tribal Nations”; provide Tribal Nations with the flexibility to improve economic growth and address the specific needs of their communities; and reduce administrative burdens. Section 2(b) of the Executive order defines “Federal funding and support programs for Tribal Nations” as including “funding, programs, technical assistance, loans, grants, or other financial support or direct services that the Federal Government provides to Tribal Nations or Indians because of their status as Indians.” As section 1 of the Executive order explains, “As we continue to support Tribal Nations, we must respect their sovereignty by better ensuring that they are able to make their own decisions about where and how to meet the needs of their communities. No less than for any other sovereign, Tribal self-governance is about the fundamental right of a people to determine their own destiny and to prosper and flourish on their own terms.” These commitments build on a recognition of principles of sovereignty, sovereign immunity, and self-governance that have been repeatedly reaffirmed by the Supreme Court. See, e.g., Three Affiliated Tribes of the Fort Berthold Reservation v. Wold Engineering, P.C., et al., 476 U.S. 877, 890-91 (1986); Oklahoma Tax Comm'n v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498 U.S. 505, 510 (1991). The Treasury Tribal Advisory Committee has advised that Tribes consider “financial support” in Executive Order 14112 to include tax matters that range from tax credits to Federal tax rules that regulate Tribal revenue.

Consistent with Executive Order 14112, the Treasury Department and the IRS recognize the importance of protecting and supporting Tribal sovereignty and self-determination. These proposed regulations are necessary for compliance with sections 6417(d)(5) and (h) and do not impose undue burdens on Tribal sovereignty.

Before these proposed regulations are adopted as final regulations, consideration will be given to comments regarding the notice of proposed rulemaking that are submitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments will be made available at https://www.regulations.gov. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn.

A public hearing has been scheduled for February 7, 2025, beginning at 10 a.m. EST, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by January 21, 2025. A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be available free of charge at the hearing. If no outline of the topics to be discussed at the hearing is received by January 21, 2025, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-116017-24 and the language “TESTIFY In Person.” For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-116017-24.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-116017-24 and the language “TESTIFY Telephonically.” For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-116017-24.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-116017-24 and the language “ATTEND In Person.” For example, the subject line may say: Request to ATTEND Hearing In Person for REG-116017-24. Requests to attend the public hearing must be received by 5 p.m. EST on February 5, 2025.

Individuals who want to attend the public hearing by telephone without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-116017-24 and the language “ATTEND Hearing Telephonically.” For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-116017-24. Requests to attend the public hearing must be received by 5 p.m. EST on February 5, 2025.

Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Section of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by 5 p.m. EST on February 4, 2025.

IRS notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

The principal author of these proposed regulations is Cameron Williamson of the Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:

The additions and revisions read as follows:

VA proposes to amend its reporting regulation at 38 CFR 36.4303 and its partial or total loss of guaranty or insurance regulation at 38 CFR 36.4328 to support its ongoing efforts to modernize and transform technology and processes within its VA-guaranteed home loan program and to make the regulations more reader-friendly. VA is accomplishing the technological transformation by updating reporting requirements and connecting with lenders and holders through application programming interfaces (APIs). Utilizing APIs will more efficiently and effectively support veterans, lenders, servicers, and other stakeholders who participate in the VA-guaranteed home loan program. Specifically, VA would launch an API ecosystem in which VA and veterans would, through increased VA oversight capabilities, have stronger protections against noncompliant lenders and holders. Additionally, lenders and holders would have more assurance and confidence in using their authority to close VA-guaranteed loans on an automatic basis and in carrying out lending and servicing functions in VA's home loan program.

To help ensure success, updates to 38 CFR 36.4303 and 36.4328 are necessary. Amendments to § 36.4303 would expand loan reporting requirements by allowing VA, lenders, and holders to take advantage of technological improvements that APIs provide, resulting in more efficient and more effective program administration. Section 36.4328 amendments would clarify provisions addressing partial or total loss of the guaranty or insurance when VA identifies fraud, material misrepresentations, or other noncompliance with VA requirements.

VA proposes to revise § 36.4303(a) to add the heading, “Automatically guaranteed loans”, and provide that, for loans automatically guaranteed under 38 U.S.C. 3703(a)(1), a lender of a class described under 38 U.S.C. 3702(d), would be required to report the loan, after loan closing, in an electronic format using an API, as designated by the Secretary. The proposed rule would further require that such a lender must, not later than 15 days after the loan closing date, use the designated API to report a loan to VA. When reporting the loan, the lender must also use the designated API to submit the appropriate funding fee as prescribed by 38 U.S.C. 3729 and required information regarding the loan, including the loan application ( e.g., the Uniform Loan Application Dataset—ULAD), closing disclosures ( e.g., the Uniform Closing Dataset—UCD), and any other information required by the Secretary.

VA further proposes to explain that VA would announce in the Federal Register any designation of a new API at least 60 days before a lender would be required to use the API for reporting the loan and submitting the funding fee and loan information. The notice would provide the name of the newly designated API(s) and a link to VA's website where VA would maintain and update technical details about the operative API(s). At the expiration of the notice period, using the designated API(s) when reporting the loan, including submission of the funding fee and loan information to VA, would be a pre-condition to VA issuing a loan guaranty certificate (LGC).

The proposed amendments would be more consistent with standard industry practice for electronic reporting. Additionally, they would allow for more efficient loan oversight. For example, currently, if a funding fee is required, the lender collects the fee at closing and electronically remits the funds to VA within 15 days of closing via VA's electronic Funding Fee Payment System (FFPS). The lender also reports the loan using WebLGY, a different system. Thus, lenders have to submit documents and remittances to two VA systems, using manual processes. Due to the manual processes and separate systems necessary, VA currently allows the lender 60 days within which to submit the loan information. See 38 CFR 36.4313(e)(3) and (4). But under the new electronic reporting system, VA would retire FFPS and combine reporting the loan and remittance of the VA funding fee into one automated process. Furthermore, because of the simplification and automation, the 60-day submission process could be handled efficiently within 15 days.

VA is committed to a user-friendly API environment that improves the overall experience with VA—not launching technological improvements for their own sake. VA also understands that many lenders have already been working with other API environments. Accordingly, VA welcomes feedback, including technical, on how VA can maximize the efficiencies that come through reporting loans using APIs and how VA's proposed process might be further refined. To that end, VA has already published on VA's website the specifications for five APIs that are in various stages of development, including the API the Secretary plans to designate as the first API for reporting guaranteed loans.

The designated API would allow lenders to report loan information electronically utilizing their Loan Origination Software (LOS). This is another advantage to the API ecosystem, because the LOS is already widely accepted throughout the industry. Most lenders use the Mortgage Industry Standards Maintenance Organization (MISMO's) standards in the delivery of closing disclosure data to other federal, or federally sponsored, housing agencies such as Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development (HUD). With VA's designated API for reporting the loan, lenders would be able to electronically report information in the UCD and ULAD via API directly from the lenders' LOS in accordance with MISMO standards. In the end, the designated API for loan reporting would allow for the full automation of the funding fee payment, loan reporting, and issuance of the LGC via lenders' LOS. Overall, based on industry data and widely held principles, VA assesses that the standardization of data reporting would lead to better accuracy, consistency, and clarity surrounding the loans VA guarantees and would promote a more consistent approach between VA and lenders.

Lenders would also make the required certifications related to the loan, using the API, including, for example, that the loan conforms with the applicable provisions of 38 U.S.C. chapter 37 and of the regulations concerning guaranty or insurance of loans to veterans.

The lender certifications are consistent with current regulations and approved information collections. See Office of Management and Budget (OMB) Control Number 2900-0909. The primary difference under the proposal is that the certifications would be submitted using the designated API(s), again saving resources and time for lenders and VA.

VA would also continue to require that a veteran make certain certifications at the time the loan is closed. Veterans would not notice any change. The primary change for lenders would be that, as with their own certifications, they would report a veteran's certifications using the designated API(s). One veteran certification would relate to past or present occupancy of the property. In the case of a loan for the purchase or construction of a residential property, or for a cash-out refinance, the veteran would be required to certify that the veteran intends to occupy such property as the veteran's home. See 38 U.S.C. 3704(c). In the case of a loan for the repair, alteration, or improvement of residential property, the veteran would be required to certify that the veteran occupies the property as the veteran's home. An exception to this is if the home improvement or refinancing loan is for extensive changes to the property that would prevent the veteran from occupying the property while the work is being completed. In such a case, the veteran would be required to certify that the veteran intends to occupy or reoccupy the property as the veteran's home upon completion of the substantial improvements or repairs. Another exception would be for an interest rate reduction refinance loan (commonly referred to as an IRRRL), where the veteran would be required to certify that the veteran either occupies the property as the veteran's home or had previously occupied it as the veteran's home. The certifications are required by statute, as are the differing occupancy requirements based on loan type. See 38 U.S.C. 3703(c), 3704(c), 3710(e).

In the event a veteran is in active-duty status as a member of the Armed Forces and is unable to occupy the property because of such status, VA would accept a certification from the spouse of the veteran that the veteran's spouse occupies or intends to occupy the property as his or her home or a certification from the veteran's attorney-in-fact or from the legal guardian of a dependent child of the veteran that the dependent child occupies or intends to occupy the property as the dependent child's home. See 38 U.S.C. 3704(c)(2).

In the case of an interest rate reduction refinancing loan, the veteran must certify as to meeting one of the occupancy requirements at 38 CFR 36.4307(a)(2). See U.S.C. 3710(e)(1)(F). The certifications required are consistent with current statutory and regulatory requirements. Id.

Lastly, VA would provide that upon VA's acceptance of the information, VA would issue the LGC, subject to provisions of proposed § 36.4328.

VA proposes to remove current paragraphs (b), (c), and (d) of 38 CFR 36.4303 and add a new paragraph (b). Proposed paragraph (b) would include the heading, “Prior-approval loans”, and provide that, in the case of any loan made by a lender without the authority to close loans on an automatic basis or any loan where the Secretary provides advance notice of the need for prior approval, the lender would be required to report the loan to the Secretary before the loan closing for the Secretary's review. Lenders would be required to report the loan in an electronic format and using an API, if an API is designated by the Secretary for this purpose. While VA anticipates releasing an API for lenders to submit loans that require prior approval by the Secretary, this API is not currently ready. As such, the Secretary would direct lenders under the proposed rule to continue using VA's current loan reporting system, WebLGY, to submit certain pre-closing and underwriting loan information for the Secretary's review. As with automatically guaranteed loans, VA would propose to include language in paragraph (b) that would require VA to announce in the Federal Register any designation of a new API at least 60 days before a lender would be required to use the API.

The loan information that must be submitted before loan closing would include the loan application (that is, the Uniform Residential Loan Application (URLA), credit reports obtained in connection with the loan application, certain VA forms as required by the Secretary, the occupancy certification as noted in proposed § 36.4303(a)(2)(iv) obtained at the time of loan application, and any other information the Secretary determines necessary for a determination.

Upon VA's review and approval of the above information, VA would issue a certificate of commitment, which would commit an LGC to the holder of the loan upon the payment of the full proceeds of the loan for the purposes described in the original report and provided the requirements in proposed § 36.4303(b)(4) are met. If VA does not approve the loan, VA would notify the lender that the loan cannot be closed as a VA-guaranteed loan; however, the lender may resubmit the loan to VA for prior approval after the lender corrects any issues identified by VA.

The lender would be required to report the loan to VA not later than 15 days after the loan closing date using the same API as when reporting loans closed on an automatic basis. The submission would also include the following items: the appropriate funding fee as prescribed by 38 U.S.C. 3729; the information prescribed in proposed § 36.4303(a)(2)(ii); evidence that any conditions identified by the Secretary in the certificate of commitment are satisfied in order for the Secretary to issue an LGC; evidence showing the property securing the loan is that for which the certificate of commitment was issued; evidence that all property purchased or acquired with the proceeds of the loan has been encumbered as required by VA; and lender and veteran certifications prescribed in proposed § 36.4303(a)(2)(iii) and (iv), respectively.

Lastly, VA would provide that upon VA's acceptance of the information, VA would issue the LGC, subject to provisions of proposed § 36.4328.

These reporting requirements for loans that require pre-approval from VA are generally not new. The change would be the method of transmission to VA, meaning that the lender would transmit the information using the designated API. VA notes, too, that prior-approval loans constitute less than one percent of VA's guaranty portfolio.

VA proposes to redesignate current paragraphs (e) and (f) of 38 CFR 36.4303 as new paragraphs (b)(6) and (c), respectively. VA would also revise newly redesignated paragraphs (b)(6) and (c).

Proposed paragraph (b)(6) would provide that if the lender does not close the loan on which prior approval was obtained, the certificate of commitment would have no further effect.

Proposed paragraph (c) would include a heading to be styled, “Late reporting of closed loans”, and would provide that, for loans not reported in accordance with the timing requirements of this section, evidence of guaranty would be issued only if the loan report is accompanied by a statement from the lending institution that explains why the loan was reported late and whether, since origination, the loan was in default. VA would require the statement to identify the case or cases in issue and to set forth the specific reason or reasons why the loan was not submitted on time. Upon receipt of such a statement, VA would issue evidence of guaranty. A pattern of late reporting and the reasons therefore would be considered by VA in taking action under §§ 36.4336 and 36.4353. VA believes that this change, to include referencing existing authority to take action under § 36.4336, would serve as a deterrence for late reporting of loans to VA.

VA proposes to redesignate current paragraph (g) as new paragraph (d). The heading would be styled, “Form of guaranty evidence.” Substantively, proposed paragraph (d) would provide that, for guaranteed loans, evidence of a guaranty would be issued by the Secretary as an LGC and that, for insured loans, notice of credit to an insurance account would be given to the lender. This revision would be to improve clarity and readability.

VA would remove current paragraphs (h) and (j) and redesignate current paragraph (i) as new paragraph (e). VA would also revise new paragraph (e) by adding the heading, “Exclusions from the guaranty or insurance amount”, and clarifying that the amounts referenced are those disbursed by a lender.

Lastly, VA would redesignate current paragraphs (k) and (l) as new paragraphs (f) and (g) and would revise new paragraphs (f) and (g) by adding the headings, “Veteran's right to exit purchase contract” and “Processing and reporting a loan assumption”, respectively. VA also proposes to revise new paragraph (g) to conform any internal references to this new paragraph and correct the references in new paragraph (g)(1)(ii)(D), which currently references paragraphs (l)(1)(i), (I)(1)(i)(B), and (l)(1)(i)(A), rather than (g)(1)(i), (g)(1)(i)(B), and (g)(1)(i)(A), respectively.

Section 36.4303 already contains collections of information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) that are approved by the Office of Management and Budget (OMB). The information collection associated with proposed § 36.4303(g), pertaining to assumptions, is currently approved under OMB control number 2900-0516. The information collection associated with proposed § 36.4303(a)(2)(iv), pertaining to the veteran's occupancy certification, is currently approved under OMB control number 2900-0521. VA is not proposing any substantive revisions to these provisions or the information collections but is proposing to add OMB control number 2900-0521 to the list of approved information collections at the end of the section.

Similarly, VA proposes to add OMB control number 2900-0909 to the list of approved information collections at the end of § 36.4303. This approved information collection pertains to existing lender reporting requirements for both automatically guaranteed loans and prior-approval loans. This includes information and certifications required under current § 36.4303(a), (c), (d), and (f). With this proposed rule, VA is revising the information required by a lender to include additional loan origination information including but not limited to the loan application ( e.g., ULAD) and closing disclosures ( e.g., UCD). VA also proposes to amend the format ( i.e., collection instrument) lenders will use to submit this information to reflect the use of APIs. Accordingly, VA has outlined these changes in the below Paperwork Reduction Act section and any incremental burden costs or savings to the public.

VA notes that it currently has approval from OMB to collect loan application information and closing disclosures under the information collection associated with 38 CFR 36.4333. This rule, in part, pertains to lenders' requirement to maintain loan origination records and VA's authority to request an audit of such records as necessary for oversight and program management. Under the current approved information collection (OMB control number 2900-0515), VA requires lenders to upload the ULAD and UCD for any loan selected for audit (also known as Full File Loan Review). With this proposed rule, lenders will have already submitted this information when they report the loan to VA for an LGC. As such, separate from this rulemaking, VA intends to revise the information collection at 38 CFR 36.4333 to remove the duplicate information collection.

Finally, VA proposes to remove the paragraph-specific authority citations and amend the authority citation at the end of § 36.4303.

VA proposes to rewrite § 36.4328, which addresses how lender or holder noncompliance with VA requirements can affect the guaranty and VA's payment of the guaranty. The rule has not been updated for some time, and VA believes modernizing the style would promote transparency, help stakeholders better understand VA's longstanding policy, and improve VA's oversight function. For example, VA would add headings at the paragraph level, as headings throughout the section would help VA employees and stakeholders better understand which provisions apply to a given situation, such as material misrepresentations in origination compared to servicing. The goal is to minimize legalese and arrange the section under a more orderly framework. In addition, VA would codify a requirement for indemnifying VA when a lender fails to comply with certain requirements.

Paragraph (a) of § 36.4328 would be revised under the heading “No liability on the guaranty or insurance due to forgery or falsification of documents.” The revision would explain that VA would have no liability on account of a guaranty or insurance of a loan, or any certificate or other evidence thereof, if—a signature to the note, the mortgage, or any other loan papers is a forgery; the application for guaranty or insurance is a forgery; or the certificate of discharge or the certificate of eligibility is counterfeited or falsified, or is not issued by the Government.

The current rule's phrase, “Subject to the incontestable provisions,” would be deleted. The deletion is because, for some readers, the phrase can perhaps give the wrong impression that VA has no enforcement authority over a guaranteed loan. It is VA's position that the introductory clause was inserted originally to emphasize what was, at the time, a newly enacted law providing more guaranty stability. VA has not intended the phrase to imply that VA has no way of addressing losses caused by forgeries, fraud, or material misrepresentations, nor has VA applied it that way.

Another historical reference that is not necessary anymore is the date, July 1, 1948. References in paragraph (a) to the date “July 1, 1948” would be deleted, because VA's guaranty portfolio no longer includes any loans made that long ago. Any substantive difference that may have applied at one point has been overtaken by time.

In short, the substance under which VA applies paragraph (a) today would not change under the proposed rule's paragraph (a). The proposal would instead eliminate outdated text for clearer intent.

VA would replace current paragraph (b) of § 36.4328 by inserting the heading, “Material misrepresentation by a lender”, and specifying the actions VA may take after learning of a material misrepresentation. Specifically, the rule would provide that if a lender knew or should have known of a material misrepresentation at the time of reporting the loan to VA under § 36.4303, VA may adjust the maximum guaranty amount on the LGC or demand indemnification from the lender. Paragraph (b)(1) would apply to instances where a material misrepresentation is identified before VA issues the LGC. Paragraph (b)(2) would apply to instances where a material misrepresentation is identified after VA issues the LGC. Paragraph (b)(3) would provide an opportunity for the lender to take corrective action, when the Secretary determines it appropriate, and either have the full guaranty amount restored or cancel the indemnification, as applicable.

Under paragraph (b)(1) of § 36.4328, which would include the heading, “Material misrepresentation is identified before VA issues the loan guaranty certificate”, VA would notify the lender of VA's findings that the lender made a material misrepresentation when reporting the loan and would issue the loan guaranty certificate with a maximum guaranty amount of one dollar. For example, in a situation where a lender reported to VA a $400,000 loan but VA found an improper charge of $100, VA would, under paragraph (b)(1), notify the lender that the LGC is issued in the amount of $1 rather than the expected $100,000.

Under paragraph (b)(2), which would address, as the heading would indicate, instances where a “Material misrepresentation is identified after VA issues the loan guaranty certificate,” VA would notify the originating lender of VA's findings and that the maximum guaranty amount on the loan has been reduced to $1, if the originating lender is the current loan holder. Alternatively, if the originating lender is not the current loan holder, VA would require the originating lender to indemnify VA, as provided in paragraph (c).

Paragraph (b)(3) of § 36.4328 would be introduced with the heading, “Corrective action by lender.” Paragraph (b)(3)(i) would explain that, when notifying the lender of VA's findings under paragraph (b)(1) or (2), VA would also identify corrective action(s), if any, VA determines necessary to remediate the effects of the material misrepresentation. After VA receives evidence confirming the effects of the material misrepresentation have been remediated, VA would either restore the guaranty to the full amount or cancel the indemnification, as applicable. Paragraph (b)(3)(ii) would state that, if VA determines the effects of the material misrepresentation cannot be remediated, VA would not offer the originating lender the opportunity to take corrective action. VA would require the originating lender to indemnify VA, as provided in paragraph (c).

The proposed revisions would improve the readability of the regulation; not change the substantive way VA conducts oversight and works with lenders and holders to help ensure a fair outcome for VA, veterans, lenders, and holders. For example, consistent with current policy, VA would not limit the application of the regulation to commissions of fraud, as violations resulting from misrepresentations that were made without malintent can be just as damaging to veterans and the Government as an act of fraud. It is longstanding policy that, when VA finds a veteran has been wrongly charged a fee, for example, VA does not need a finding of fraud to instruct the lender to reimburse the veteran for the improper charge. VA instructs the lender that the charge must be reimbursed. VA notes, too, that the applicable statute does not, in authorizing VA to assert defenses, mention intent. See 38 U.S.C. 3721.

Similarly, VA has for some time offered lenders the opportunity to indemnify VA against any eventual loss when the lender violated one of VA's regulations. Although VA has not codified the procedure explicitly until now, the indemnification process has proven effective for all stakeholders. The veteran continues to receive all the advantages that accompany a VA-guaranteed loan. The holder continues to be able to rely on the guaranty. The market continues to consider the VA guaranty a premium certification. Importantly, too, VA continues to be able to protect the taxpayer against losses VA would not have incurred had VA known of a violation at the time of issuing the LGC, using a common risk-shifting mechanism in the financial industry.

VA would delete the term “willful” from the current rule, but again, VA does not expect that lenders or holders would notice a change in VA's approach. As with the illustration regarding the improper $100 charge, VA already considers the improper charge a material misrepresentation, even if just the lender's mistake. This is because the lender is responsible for ensuring its own compliance with VA's statutes and regulations. Yet, the lender submitted the loan for guaranty, requesting a higher guaranty amount than VA would have guaranteed had VA known of the improper charge. Plus, the veteran who obtained the guaranteed loan has been wrongly required to pay $100, and VA believes that, in such a circumstance, the veteran deserves to be made whole by the lender. VA also already works with the lender to ensure the veteran is reimbursed for the improper charge. Thus, the proposed rule would more specifically outline current procedures than the current rule does but would not change the expectations lenders and holders have come to rely on.

VA understands the importance of being able to rely on VA's guaranty, particularly given how critical it is to the secondary investment market, which supplies to many in the lending industry the liquidity necessary for making VA-guaranteed loans. VA believes the additional clarity under the proposed rule would help further that stability, rather than detract from it, as it would make clearer the policies and procedures VA has employed for some time in addressing noncompliance. Yet at the same time, the revision would serve as a clear reminder to lenders that in originating loans or servicing loans of veterans with VA-guaranteed loans, the lender must ensure the representations they make to VA align with the facts as represented.

VA would, under the heading “Indemnification after VA issues the loan guaranty certificate,” replace paragraph (c) of § 36.4328 to codify the indemnification process applicable to a loan where fraud or a material misrepresentation is identified after VA has issued the LGC. One type of indemnification, applicable to noncompliance with underwriting requirements in § 36.4340, would have a 5-year term, including any subsequent interest rate reduction refinancing loans, under proposed paragraph (c)(1). The other type of indemnification would apply to noncompliance for reasons other than underwriting decisions under § 36.4340. Under proposed paragraph (c)(2), the duration of this latter type would last the life of the loan, including any subsequent interest rate reduction refinancing loans.

Proposed paragraph (c)(1) of § 36.4328 would include the heading of, “Violations of underwriting requirements”, and state that, if VA determines the originating lender made a material misrepresentation relating to the credit underwriting of a loan pursuant to the provisions of § 36.4340, the originating lender must abstain from filing a guaranty or insurance claim in the event of a loan default and must indemnify VA for any and all losses arising from or related to a guaranty or insurance claim made on the loan within five years of the date of the loan guaranty certificate, including any subsequent interest rate reduction refinancing loans. A few examples of material misrepresentations related to the provisions of § 36.4340 are failures to (i) verify assets, employment, and credit reports (38 CFR 36.4340(j)); (ii) determine or accurately determine the veteran's acceptable debt-to-income ratio (38 CFR 36.4340(c)); or (iii) ensure residual income guidelines were met (38 CFR 36.4340(e)).

The proposed five-year indemnification for underwriting deficiencies would reflect VA's longstanding policy that underwriting is critical to a lender's assessment of a veteran's ability to repay, while also recognizing that as time passes any underwriting deficiencies are less likely to be responsible for a loan default by the veteran. VA believes that five years of stable payment history by the veteran provides enough time to assure VA that any default thereafter is likely due to factors unrelated to any underwriting deficiencies at origination. VA also believes a shorter period does not offer adequate protection against preventable defaults or deterrence against lenders who might otherwise adopt a pattern of noncompliance as a business model. A longer timeframe, however, may unduly damage lenders' interests and affect lender participation in helping to deliver the home loan benefit to veterans.

To further support VA's proposed five-year indemnification policy, VA reviewed the performance of 157 indemnified loans with five-year agreements signed on or after January 12, 2017. Historically, VA-guaranteed loans have maintained some of the lowest foreclosure rates in the industry, often below one percent. However, VA observed 12 foreclosures that occurred within the five-year indemnification period as opposed to only two foreclosures outside of the five-year indemnification period. Further, one-third of foreclosures occurring during the indemnification period (four out of 12 foreclosures) happened between years three and five. Based on this analysis, VA proposes to continue its current policy of requiring a five-year indemnification period for any underwriting deficiencies.

The proposed carryover to include interest rate reduction refinance loans likewise reflects VA's longstanding policy. Interest rate reduction refinance loans, unlike purchase loans and cash-out refinance loans, are guaranteed using the veteran's same entitlement from the loan being refinanced and do not require a new, full underwriting. See 38 U.S.C. 3710(e) and 38 CFR 36.4307. Because of this, the same risks associated with noncompliance in the original underwriting violations are associated with the interest rate reduction refinance loan. If VA were not to apply the indemnification, unscrupulous lenders could avoid accountability because of a loophole (for example, through strategic noncompliance, then an interest rate reduction refinance loan, along with another origination fee to the lender, to thwart enforcement). Thus, VA believes it is necessary to close the loophole by ensuring the indemnification continues to cover interest rate reduction refinances, as well as the original loan, during the five-year indemnification period.

VA also proposes that recovery under the indemnification would be irrespective of whether the material misrepresentation in the loan underwriting directly leads to a loan default. VA's current standard practice for indemnification agreements is not based on VA having to establish a causal connection between the violation and the default, and VA believes establishing causation as a threshold would be inconsistent with proper risk management practices. Additionally, investigations necessary to establish the cause would be overly taxing on VA's limited resources, especially when viewed in light of the fact that, if VA had known of the underwriting violation, VA never would have guaranteed the loan in the first place.

Under proposed paragraph (c)(2) of § 36.4328, an originating lender would be required to indemnify VA for a longer period for the originating lender's fraud or for the originating lender's material misrepresentation related to non-underwriting violations. Specifically, paragraph (c)(2) would include the heading, “Non-underwriting related violations”, and would state that if VA determines the originating lender committed fraud or made an uncorrectable material misrepresentation relating to noncompliance with requirements other than those prescribed in § 36.4340, the originating lender must abstain from filing a guaranty or insurance claim in the event of a loan default and must indemnify VA for any and all losses arising from or related to a guaranty or insurance claim, for the life of the loan, including any subsequent interest rate reduction refinancing loans.

Regarding fraud, VA believes there should not be a scenario where a lender can choose whether defrauding the Government is financially worth the risk. VA does not tolerate fraud. Indemnification for the life of the loan, as well as for any later interest rate reduction refinance loans, would protect the veteran by ensuring that the veteran receives all the loan servicing advantages that accompany a VA-guaranteed loan and would protect the government against any losses.

Even if made without fraudulent intent, a material misrepresentation that cannot be remediated or one that is not related to underwriting noncompliance can leave violations unresolved over the duration of the loan. The defects simply cannot be resolved. Accordingly, VA believes it is appropriate, and consistent with sound financial practice common among industry participants, to shift the risk from the entity harmed by the material misrepresentation (in this case, veterans, the integrity of VA's program, and taxpayers at-large) back to the originating lender that knew or should have known of an uncorrectable noncompliance. The indemnification would be irrespective of whether material misrepresentation is causally connected to a default and would apply to later interest rate reduction refinance loans, for the reasons explained above.

In proposed paragraph (c)(3), under the heading “Notice of indemnification”, VA would specify that the Secretary would notify the lender when VA determines that a loan is subject to indemnification.

Procedurally, a paper agreement would no longer be used when completing an indemnification agreement. When VA discovers a fraud or material misrepresentation, VA and the originating lender would communicate via one or more of the designated APIs described under proposed § 36.4303. This would provide more efficiency, require fewer resources, and align with industry expectations of using technology to help ease administrative burden.

VA proposes to add a new paragraph (d) to 38 CFR 36.4328, under the heading, “Guaranty adjustments to holder”, to reduce possible confusion surrounding the current regulation's application to holders. VA proposes paragraph (d)(1), with the heading, “Fraud in obtaining the guaranty or insurance”, to provide that VA would have no liability on account of a guaranty or insurance, or any loan guaranty certificate, with respect to a transaction in which VA determines the holder or holder's agent participated in fraud in obtaining the guaranty or insurance. In other words, the holder is not a holder in due course if the holder colluded with the originating lender in defrauding VA. So, the rule would mean that, even if a holder was not the originating lender, if the holder was directly involved or complicit in the fraud at origination, VA would not have liability on the guaranty.

In proposed paragraph (d)(2), VA would state, under the heading “Holder fraud in obtaining a claim payment on the guaranty or insurance”, that VA would have no liability on a guaranty or insurance claim if the holder commits fraud in obtaining a claim payment from VA on the guaranty or insurance of a loan. As explained in the paragraphs related to fraud by lenders, VA believes a holder that commits fraud against the government forfeits the protections Congress wanted to provide the secondary market under 38 U.S.C. 3721.

Paragraph (d)(3) would include the heading “Material misrepresentations related to the quantum or quality of title”, and would state that VA may adjust the amount of the guaranty or insurance, or any loan guaranty certificate, if VA determines the holder knew or should have known, at the time the holder reports the loan for guaranty claim, of a material misrepresentation as to the quantum or quality of, or title to, the property securing the loan such that the property would not have been acceptable to prudent lending institutions, investors, informed buyers, title companies, and attorneys, generally, in the community in which the property is situated. VA would not, however, adjust the guaranty or insurance amount for title exceptions enumerated as acceptable under § 36.4354(b), unless otherwise specified in subpart B.

The proposed phrasing is almost identical to the current rule. The changes are intended as clarifications. For instance, VA would replace “limitations” under § 36.4354(b) with “title exceptions enumerated as acceptable,” to eliminate some of the current ambiguity that may surround VA's intent. Similarly, VA would add the caveat “unless otherwise specified” in subpart B, to remind readers that the rule is part of a coherent and consistent framework and cannot be taken out of context. A good example of how this might apply can be found in § 36.4327, which addresses authorized and unauthorized releases of security. If a holder allowed a new oil and gas lease—a type of title exception that could generally be acceptable under § 36.4354(b)—but did so without following the steps prescribed in § 36.4327 for partial releases in interest, the unauthorized release could affect the amount of guaranty payable on an eventual default. This is the way VA applies the current rule, but VA believes the current rule's text may not express it clearly enough. Thus, VA believes that, as a part of this regulatory update, VA should specify the scope of the rule more explicitly.

Paragraph (d)(4) would include the heading “Noncompliance with servicing requirements and material misrepresentation in reporting.” Paragraph (d)(4)(i) would provide that VA may adjust amounts payable to the holder if VA determines the holder failed to comply with the statutory requirements under 38 U.S.C. chapter 37 or the implementing regulations concerning guaranty or insurance of loans to veterans at 38 CFR part 36 or if VA determines the holder knew or should have known of a material misrepresentation in reporting to the Secretary or in submitting a claim to VA for payment of the guaranty or insurance. Paragraph (d)(4)(ii) would specify that the burden of proof would be upon the holder to establish that no increase of ultimate liability is attributable to such failure or misrepresentation. Paragraph (d)(4)(iii) would explain that the amount of increased liability of the Secretary would be offset by deduction from the amount of the guaranty or insurance otherwise payable, or if based upon loss related to property that secured the guaranteed loan, would be offset by crediting to the indebtedness the amount of the impairment as proceeds of the sale of security in the final accounting to the Secretary. Paragraph (d)(4)(iv) would provide that, to the extent the loss resultant from the failure or misrepresentation prejudices the Secretary's right of subrogation, acceptance by the holder of the guaranty or insurance payment would subordinate the holder's right to those of the Secretary.

In revising the rule, VA would eliminate the list of potential reasons for adjustment found in current paragraphs (b)(1) through (9). Stakeholders should not misconstrue this change to mean that VA would no longer consider the failures outlined in the current rule as reasons to adjust the guaranty. Rather, VA simply believes that the new rewrite would eliminate the need to enumerate them in the current way. For instance, current paragraph (b)(1) of § 36.4328 reminds that one of the fundamental requirements for a VA-guaranteed loan is that it be obtained and retained as a superior lien. See 38 CFR 36.4328(b)(1). See also, for example, 38 U.S.C. 3703(d) and 38 CFR 36.4327. The proposed rule would omit the specific enumeration of this as an example of a failure that would result in an adjustment. But even so, VA would, under the proposed rule, still adjust the guaranty for such a failure, because proposed paragraph (d)(4)(i) would provide that VA may adjust the amount of the guaranty or insurance, or any loan guaranty certificate, if VA determines the holder failed to comply with the statutory requirements under 38 U.S.C. chapter 37 or the implementing regulations concerning guaranty or insurance of loans to veterans. VA welcomes comment on whether stakeholders would prefer to retain a more illustrative list as a way of providing stakeholders further understanding. VA does not intend for an attempt at simplification of the rule to result in holders being unsettled about the reliability of the guaranty; nor does VA want veterans, consumer advocates, or those concerned about the welfare of program solvency to be concerned about the scope of the change.

VA would redesignate current paragraph (c) of 38 CFR 36.4328 as new paragraph (e). VA would revise new paragraph (e) to clarify the wording for readability, but the proposed change is not substantive.

In § 36.4328, VA would add a new paragraph (f), under the heading, “Additional remedies”, to ensure full transparency related to VA's enforcement authorities. VA would provide that, any action VA takes under this section may be taken in addition to other remedies available to VA, such as debarment and suspension pursuant to 38 U.S.C. 3704 and 2 CFR parts 180 and 801 or loss of automatic processing authority pursuant to 38 U.S.C. 3702, or other actions by the Government under any other law including but not limited to title 18 U.S.C. and 31 U.S.C. 3732. Although the paragraph is not legally necessary to preserve VA's rights of enforcement, VA believes an intentional, explicit redundancy would be helpful in emphasizing the point that this section does not constitute the full range of potential action VA could or would take if VA discovered, for instance, a pattern of intentional material misrepresentations, seemingly incorporated into business practices after a monetary cost-benefit calculus.

Lastly, VA would revise the authority citation for § 36.4328 to note 38 U.S.C. 3703, 3704, 3710, 3720, 3721, and 3732.

Executive Order 12866 (Regulatory Planning and Review) directs agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 14094 (Executive Order on Modernizing Regulatory Review) supplements and reaffirms the principles, structures, and definitions governing contemporary regulatory review established in Executive Order 12866 of September 30, 1993 (Regulatory Planning and Review), and Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review). The Office of Information and Regulatory Affairs has determined that this proposed rulemaking is a significant regulatory action under Executive Order 12866, as amended by Executive Order 14094. The Regulatory Impact Analysis associated with this rulemaking can be found as a supporting document at www.regulations.gov.

The Secretary hereby certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (5 U.S.C. 601-612). To assess whether the proposed rule could be expected to have a “significant economic impact” on a substantial number of small entities, VA considers the annual costs and transfer payments of the rule for and from small entities compared to their annual revenue. As described in the impact analysis, the estimated impacts of this rulemaking on lenders include transfers from lenders to VA associated with overcharge fees and guarantee claim amounts, the cost of rule familiarization and system updates to lenders, and cost savings associated with reduced burden associate with API utilization. A more detailed discussion of these impacts can be found in the impact analysis.

VA was able to estimate the size of 1,203 out of 1,450 active lenders that originated VA loans within the past three fiscal years using a combination of sources. VA relied on the size standards from the Small Business Administration (SBA)  1 and used data from Data Axle and Factiva (two business data providers) along with data from the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA). 2 Of the 1,203 lenders with sufficient data for VA to estimate their size, 703 (58.4%) are considered small. The average annual revenue of these 640 lenders is estimated at $25.51 million. 3

The costs of the one-time rule familiarization in the first year of the rule (fiscal year [FY] 2025) are estimated at approximately $240 for each lender, including the small lenders. VA estimates that the net cost savings to lenders from the reduction in reporting burdens and system updates ranges from $1,066 (FY 2025) to $1,110 (FY 2034) per small lender. 4 The estimated transfer payment from lenders in the form of overcharge fees and guarantee claim amounts ranges from $2,547 (FY 2025) to $9,373 (FY 2034) per small lender. Adding these impacts results in the average estimated annual burden of [$2,547 + $240 −$1,066 = ] $1,721 to [$9,373 −$1,110 = ] $8,263 per small lender from the first and final years of the analysis period (FY 2025 and FY 2034), respectively. VA considers a significant economic impact to equal or exceed 3 percent of annual revenue. The burden of the rule as a proportion of small lender revenue ranges from 0.007 percent to 0.032 percent for FY 2025 and FY 2034, respectively. On this basis, the Secretary certifies that adopting this proposed rule would not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act. Therefore, under 5 U.S.C. 605(b), the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604 do not apply.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This proposed rule would have no such effect on State, local, and tribal governments, or on the private sector.

As noted above, this proposed rule contains collections of information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) that are currently approved by OMB but do not require revision. These information collections have valid OMB control numbers of 2900-0516 and 2900-0521. Additionally, this proposed rule includes provisions constituting a revised collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) that requires approval by OMB under existing OMB control number 2900-0909. Accordingly, under 44 U.S.C. 3507(d), VA has submitted a copy of this rulemaking action to OMB for review and approval.

OMB assigns control numbers to collections of information it approves. VA may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. If OMB does not approve the collection of information as requested, VA will immediately remove the provisions containing the collection of information or take such other action as is directed by OMB.

Comments on the revised collection of information contained in this rulemaking should be submitted through www.regulations.gov. Comments should be sent within 60 days of publication of this rulemaking. The collection of information associated with this rulemaking can be viewed at: www.reginfo.gov/public/do/PRAMain.

OMB is required to make a decision concerning the collection of information contained in this rulemaking between 30 and 60 days after publication of this rulemaking in the Federal Register . Therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. This does not affect the deadline for the public to comment on the provisions of this rulemaking.

The Department considers comments by the public on a revised collection of information in—

• Evaluating whether the revised collection of information is necessary for the proper performance of the functions of the Department, including whether the information will have practical utility;

• Evaluating the accuracy of the Department's estimate of the burden of the revised collection of information, including the validity of the methodology and assumptions used;

• Enhancing the quality, usefulness, and clarity of the information to be collected; and

• Minimizing the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.

The revised collection of information associated with this rulemaking contained in 38 CFR 36.4303 is described immediately following this paragraph, under its respective title.

Title: Guaranteed or Insured Loan Reporting Requirements.

OMB Control No: 2900-0909.

CFR Provision: 38 CFR 36.4303.

• Summary of collection of information: The revised collection of information would require all lenders that participate in the VA-guaranteed home loan program to submit the reporting and certification requirements as noted in proposed 38 CFR 36.4303 in an electronic format using an API, as designated by the Secretary. While VA currently requires lenders to report certain loan information and certifications as part of the existing loan guaranty certificate and reporting process, this proposed rule would require additional information including the loan application ( e.g., Uniform Loan Application Dataset), closing disclosures ( e.g., Uniform Closing Dataset), and other information necessary for VA evaluation and oversight purposes. Additionally, lenders would be required to submit information using an API rather than the current system, WebLGY.

• Description of need for information and proposed use of information: VA would use this information to ensure that veterans have stronger protections against lenders closing nonconforming loans through increased VA oversight, as the Guaranty Remittance API would allow VA to review 100 percent of guaranteed loans for policy conformance with certain VA statutory and regulatory requirements that VA only currently evaluates on three percent of loans as part of its full file loan review and audit processes. Specifically, VA would be able to evaluate loan closing data on 100 percent of guaranteed loans for VA policy conformance with certain statutory, regulatory, or other requirements. As a result, VA would be able to cite defenses to paying the guaranty based on fraud or material misrepresentation and establish partial defenses to the amount payable on the guaranty or insurance. Lenders and holders would have a clear understanding of how failure to comply with VA's statutory and regulatory requirements affect the guaranty to be paid by VA.

• Description of likely respondents: Lenders.

• Estimated number of respondents:

Loans reported and certified: 484,019 annually.

Loans requiring VA prior approval: 1,815 annually.

Loans requiring Late Reporting Statements: 24,201 annually.

• Estimated frequency of responses: One time per transaction.

• Estimated average burden per response:

Loans reported and certified: 0.008 hours (about 30 seconds). This proposed rulemaking would result in an estimated reduction of 0.15 average burden hour per response (about 9 minutes) for this information collection.

Loans requiring VA prior approval: 0.008 hours (about 30 seconds). This proposed rulemaking would result in an estimated reduction of 0.04 average burden hour per response (about 2 minutes and 30 seconds) for this information collection.

Loans requiring Late Reporting Statements: 0.03 hours (about 2 minutes). VA does not estimate any incremental change to the average burden hour per response for this information collection.

• Estimated total annual reporting and recordkeeping burden: VA estimates a total annual reporting and recordkeeping burden of 4,612 hours for lenders. Using VA's revised estimate of total annual responses (loans) of 484,019 (down from 843,150 loans) loan estimate, this rulemaking would result in incremental annual burden hour savings of 72,675 burden hours.

Loans reported for Guaranty (including prior approval): 3,886 hours ((484,019+1,815) × 0.008 hours).

• Estimated cost to respondents per year: VA estimates the annual burden cost to lenders to be $187,339. 5 Using VA's revised estimate of total annual responses (loans) of 484,019, this rulemaking would result in incremental annual burden cost savings of $2,836,172 for FY 2025 (average of high/low estimated net cost savings) and incremental annual burden cost savings of $2,952,050 in the following outyears.

• VA also estimates this proposed rulemaking results in a one-time system alignment cost to lenders and LOS providers ranging from $88,288 to $143,468. More details about this estimate can be found in the impact analysis.

Denis McDonough, Secretary of Veterans Affairs, approved and signed this document on November 12, 2024, and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs.

For the reasons stated in the preamble, the Department of Veterans Affairs proposes to amend 38 CFR part 36 as set forth below:

This document proposes to take action on Tennessee's changes to its hazardous waste management program under the Resource Conservation and Recovery Act (RCRA), as amended. We have published a final action authorizing these changes in the “Rules and Regulations” section of this Federal Register because we view this as a noncontroversial action and anticipate no adverse comment. We have explained our reasons for this action in the preamble to the final action.

If we receive no adverse comment, we will not take further action on this proposed rule. If we receive adverse comment, we will either withdraw the final action, or issue a notice containing a response to comments that either reverses the decision or affirms that the final action will take effect. In the event that the final action is withdrawn, we would address all public comments in a subsequent final action and make any further decision on the authorization of the State program changes after considering all comments received during the comment period.

We do not intend to institute a second comment period on this action. Any parties interested in commenting must do so at this time. For further information, please see the information provided in the ADDRESSES section of this document.

This is a summary of the Commission's Third Further Notice of Proposed Rulemaking ( FNPRM ) in WC Docket No. 18-336, FCC 24-111, adopted October 17, 2024, and released October 18, 2024. The full text of this document is available for public inspection at the following internet address: https://docs.fcc.gov/public/attachments/FCC-24-111A1.pdf.

The FNPRM may contain proposed new and revised information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public and Office of Management and Budget (OMB) to comment on the information collection requirements contained in this document, as required by the Paperwork Reduction Act of 1995 (Pub. L. 104-13). In addition, pursuant to the Small Business Paperwork Relief Act of 2002 (Pub. L. 107-198) see 44 U.S.C. 3506(c)(4), we seek specific comment on how we might further reduce the information collection burden for small business concerns with fewer than 25 employees.

Pursuant to §§ 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS).

• Electronic Filers: Comments may be filed electronically using the internet by accessing the ECFS: https://www.fcc.gov/ecfs/.

• Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing.

• Filings can be sent by hand or messenger delivery, by commercial courier, or by the U.S. Postal Service. All filings must be addressed to the Secretary, Federal Communications Commission.

• Hand-delivered or messenger-delivered paper filings for the Commission's Secretary are accepted between 8 a.m. and 4 p.m. by the FCC's mailing contractor at 9050 Junction Drive, Annapolis Junction, MD 20701. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building.

• Commercial courier deliveries (any deliveries not by the U.S. Postal Service) must be sent to 9050 Junction Drive, Annapolis Junction, MD 20701.

• Filings sent by U.S. Postal Service First-Class Mail, Priority Mail, and Priority Mail Express must be sent to 45 L Street NE, Washington, DC 20554.

People with Disabilities: To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (TTY).

Confidentiality. Some information and materials requested by this FNPRM may be confidential and proprietary. Individuals and entities may request that confidential and proprietary information submitted to the Commission be withheld from public inspection consistent with § 0.459 of the Commission's rules.

This proceeding in this FNPRM shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. Persons making ex parte presentations must file a copy of any written presentation or a memorandum summarizing any oral presentation within two business days after the presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all persons attending or otherwise participating in the meeting at which the ex parte presentation was made, and (2) summarize all data presented and arguments made during the presentation. If the presentation consisted in whole or in part of the presentation of data or arguments already reflected in the presenter's written comments, memoranda, or other filings in the proceeding, the presenter may provide citations to such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them in the memorandum. Documents shown or given to Commission staff during ex parte meetings are deemed to be written ex parte presentations and must be filed consistent with § 1.1206(b). In proceedings governed by § 1.49(f) or for which the Commission has made available a method of electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations, and all attachments thereto, must be filed through the electronic comment filing system available for that proceeding, and must be filed in their native format ( e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this proceeding should familiarize themselves with the Commission's ex parte rules.

The Providing Accountability Through Transparency Act (Pub. L. 118-9) requires each agency, in providing notice of a rulemaking, to post online a brief plain-language summary of the proposed rule. The required summary of this FNPRM is available at https://www.fcc.gov/proposed-rulemakings.

The Regulatory Flexibility Act of 1980, as amended (RFA) requires that an agency prepare a regulatory flexibility analysis for notice and comment rulemakings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” Accordingly, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) concerning the possible impact of the potential rule and policy changes contained in the FNPRM. The Commission invites the general public, particularly small businesses, to comment on the IRFA. Comments must be filed by the deadlines for comments on the FNPRM indicated on the first page of this document and must have a separate and distinct heading designating them as responses to the IRFA and must be filed in WC Docket No. 18-336.

1. Texting is an important mode of communication to the 988 Lifeline and is the preferred means of communicating among certain demographic groups, many of whom are at increased risk for mental health crises. In this FNPRM, we propose to require that covered text providers support georouting to ensure that the 988 Lifeline may route covered 988 text messages to the appropriate local crisis center to enhance the support and resources available to text users in crisis. We also tentatively conclude that, at a minimum, Commercial Mobile Radio Service providers must support georouting for Short Message Service (SMS) text messages to 988. In addition, we propose that covered text providers be subject to requirements to send georouting data to the 988 Lifeline to the same extent that they are currently required to send covered 988 texts to the 988 Lifeline. These proposed requirements will build on the implementation of georouting for wireless 988 voice calls and ensure parity between texts and voice calls to 988.

2. In 2021, the Commission adopted requirements for covered text providers to route covered 988 text messages to the 988 Lifeline. The Commission defined “covered text provider” as including “all CMRS providers as well as all providers of interconnected text messaging services that enable consumers to send text messages to and receive text messages from all or substantially all text-capable U.S. telephone numbers, including through the use of applications downloaded or otherwise installed on mobile phones.” The Commission's goal in the 2021 Text-to-988 Second Report and Order, 87 FR 398 (Jan. 5, 2022), was to make text-to-988 rapidly available nationwide to improve access to mental health resources, while balancing the need for covered text providers to flexibly choose the most effective method of compliance. The Commission defined “covered 988 text message” as “a 988 text message in SMS format and any other format that the Wireline Competition Bureau has determined must be supported by covered text providers.” Currently, the Commission requires covered text providers to route covered 988 texts to the 988 Lifeline, but it does not require covered text providers to provide any additional information about the location of the text user. Under the rules adopted in the Third Report and Order (FCC 24-111), published elsewhere in this issue of the Federal Register , texts to 988 must be delivered to the national suicide prevention and mental health crisis hotline system maintained by the Assistant Secretary for Mental Health and the Secretary of Veterans Affairs. In the Implementation of the National Suicide Hotline Act of 2018, Second Further Notice of Proposed Rulemaking, 89 FR 46340 (May 29, 2024), we sought comment on improving routing for 988 text messages.

3. The Commission's definition of “988 text message” sets the possible scope of text formats which covered text providers may be obligated to support for the delivery of 988. “Covered 988 text messages” are a subset of 988 text messages that are in SMS format or any other format that the Wireline Competition Bureau has determined must be supported by covered text providers. The Commission delegated to the Wireline Competition Bureau the authority to make future determinations to require covered text providers to support additional text formats in consultation with Federal partners and in consideration of what text formats the 988 Lifeline is capable of receiving. The Wireline Competition Bureau annually consults with the U.S. Department of Health and Human Services' (HHS) Substance Abuse and Mental Health Services Administration (SAMHSA) on the implementation of any new texting formats to 988 and issues a Public Notice either announcing that no new texting formats are required or seeking comment on implementation parameters for covered text providers to transmit any additional text message formats to 988. The Wireline Competition Bureau then may, under delegated authority, release a Public Notice requiring covered text providers to implement text-to-988 for these additional text message formats and setting implementation dates. As part of its annual consultation with SAMHSA, the Wireline Competition Bureau has only applied text-to-988 requirements to the text formats that the 988 Lifeline currently supports. At present, the Wireline Competition Bureau only requires covered text providers to route 988 text messages in SMS format.

4. In this FNPRM, we propose to require that covered text providers implement the capability to provide georouting data with covered 988 text messages to the Lifeline Administrator and provide georouting data with covered 988 text messages to the Lifeline Administrator. We propose that the scope of this requirement be consistent with the scope of the existing requirement for covered text providers to deliver covered 988 text messages to the 988 Lifeline. As with the delivery requirement for covered 988 text messages, we also propose to limit the application of text-to-988 georouting requirements to the text formats that the 988 Lifeline supports. Given that the 988 Lifeline currently only accepts SMS text messages, this proposal would require covered text providers to implement georouting only for SMS text messages as an initial matter. Should the 988 Lifeline begin to accept other text formats in the future, we anticipate that there would be a similar need for georouting data for such additional text formats. Under our proposed approach, we would direct the Wireline Competition Bureau to consult with SAMHSA as to whether the 988 Lifeline can accept georouting data with any newly identified text formats as part of its annual consultation process and to seek comment on applying georouting requirements to any newly identified text formats in its annual Public Notice. We also propose to delegate authority to the Wireline Competition Bureau to require covered text providers to implement georouting for any new text formats and to set an implementation date that is as prompt as is reasonably practical. This flexible approach would allow the Commission to evaluate on an ongoing basis whether to apply georouting requirements to any new formats that the 988 Lifeline may become capable of receiving in the future.

5. Further, we tentatively conclude that at a minimum CMRS providers must support georouting for SMS text messages to 988. The record indicates that requiring CMRS providers to implement georouting for covered 988 text messages will support the 988 Lifeline's mission and save lives. In addition, we believe it is likely that CMRS providers originate a substantial majority of texts currently received by the 988 Lifeline. Georouting for SMS text messages originated by CMRS providers would represent a substantial improvement in the percentage of covered 988 texts arriving at the 988 Lifeline with georouting data. As discussed in the analysis of benefits and costs section, the benefits of implementing georouting for covered 988 text messages appear to significantly outweigh the anticipated costs to CMRS providers. These benefits include improved support for certain populations with an increased risk of suicide. The record also suggests that it is technically feasible for CMRS providers to provide georouting data with texts to 988. The ongoing use of coarse location routing for texts to 911 strongly suggests that CMRS providers have such location information available for routing SMS text messages to 988. In the 911 context, covered text providers are required to route texts to 911 using coarse location (cell ID and cell sector) or other equivalent means that allows the covered text provider to route a texts to the appropriate PSAP.

6. We seek comment on this approach and on our tentative conclusion. Should we instead limit the scope of the georouting rule language to one or more specific text formats, such as SMS, or to certain types of covered text providers, such as CMRS providers or covered text providers that have access to cellular networks? What are the benefits and drawbacks of each regulatory approach, and the impact to individuals that text the 988 Lifeline?

7. In the text-to-988 georouting rules, we propose to include definitions of the terms “commercial mobile radio service,” “georouting data,” and “Lifeline Administrator” that were adopted in the Third Report and Order (FCC 24-111), published elsewhere in this issue of the Federal Register . Additionally, we also propose to correct the text of § 52.201(b) of Commission's rules to read “Commercial Mobile Radio Service” instead of “Commercial Mobile Radio Services.” We seek comment on our proposal. Are there any other terms that we should define or revise as they relate to the proposed georouting rules for covered text providers? We seek specific comment on how the proposed definition of “georouting data” impacts the text-to-988 georouting rules that we propose in this FNPRM. The definition specifically applies to “location data generated from cell-based location technology.” For which covered text providers, and in which circumstances, would georouting data so defined be available? Should we adopt a definition of “georouting data” for the text-to-988 georouting rules that differs from the definition of this term for the georouting rules for voice calls to 988?

8. We propose to adopt and seek comment on a two-part requirement for covered text providers to: (1) have the capability to provide georouting data with covered 988 text messages to the Lifeline Administrator in a format compatible with the Lifeline's routing platform, to allow routing of the covered 988 text message by the Lifeline Administrator to the appropriate crisis center based on the geographic area where the handset is located at the time the covered 988 text is initiated; and (2) provide georouting data, when available, with covered 988 text messages to the Lifeline Administrator sufficient to allow routing of the covered 988 text message by the Lifeline Administrator to the appropriate crisis center based on the geographic area where the handset is located at the time the covered 988 text is initiated. Covered text providers would be required to comply with this requirement six months from the effective date of final rules. We seek comment on this proposal.

9. Several commenters support developing georouting capabilities for texts to the 988 Lifeline and indicate that parity for voice and text service to 988 is an important goal. Several commenters specifically support a georouting requirement for texts. Although some parties argue that a georouting solution for texts is not necessary at this time because most texts are handled at the national rather than local level, we note that SAMHSA is currently expanding local response to texts to 988. To the extent that texts to 988 are routed to local crisis centers as the result of SAMHSA's evolving service offering, we believe those texts should be routed as accurately as voice calls in order to provide the most responsive care to text users, and seek comment on this belief. Washington Department of Health states that a georouting solution for texts to 988 confers the same types of benefits as georouting for voice calls to 988. We seek comment on such benefits, and on any additional benefits specific to a georouting solution for texts to 988. Commenters emphasize that text messaging to the 988 Lifeline is a preferred communication method for certain groups, specifically young adults and LGBTQI+ individuals, as well as in certain situations in which greater privacy is needed or when cell reception is inadequate to complete a phone call. As a matter of equity, the benefits of georouting communications to 988 should extend to such groups and situations for which there is a preference or need to contact 988 via text messaging. Are there other specific communities or scenarios that would benefit from the implementation of georouting data for texts to 988? For example, does georouting for texts particularly benefit people who are deaf, deafblind, hard of hearing, speech disabled, or have other disabilities that impact communication?

10. Several telecommunications industry commenters and one national backup provider for 988 text and chat services urge the Commission to refrain from adopting regulations for georouting covered text messages to the 988 Lifeline. We specifically disagree with commenters who argue that existing routing mechanisms are adequate for purposes of the 988 Lifeline and seek comment on this position. Even if “the first six digits of the phone number of people reaching out to the Crisis Text Line are accurate to their state location approximately 86% of the time,” as reported by the Crisis Text Line, georouting texts to 988 based on cell location will ensure that an increased portion of users are quickly connected with local life-saving resources. We also believe that the benefits of georouting texts are not limited to instances in which the contact requires an emergency services intervention, as suggested by the Crisis Text Line. Instead, we consider that, as with voice, the benefits of georouting for text will extend to all text users connected to a local crisis center because such centers will be more familiar with the local area's resources, as well as possibly being more familiar with cultural issues or community stressors in the text user's area. While there are alternatives to automated georouting that can connect text users with local resources, the Commission remains committed to making it easier for those in crisis to get help. We seek comment on our analysis and this approach.

11. The capability to provide georouting data. We seek comment on our proposed rule that covered text providers must have the capability to provide georouting data with covered 988 text messages to the Lifeline Administrator in a format compatible with the Lifeline's routing platform. In particular, we seek comment on potential georouting solutions for texts to the 988 Lifeline and on any progress to identify and implement a georouting solution for texts to 988 and the steps to complete implementation. We propose this requirement in two parts, with a separate requirement for covered text providers to obtain the capability to provide georouting data, in order to ensure that covered text providers deploy this life-saving technology on their networks by the proposed deadline, regardless of the 988 traffic that a covered text provider has historically originated. Is a separate requirement for covered text providers to obtain the capability to provide georouting data needed, or should the only georouting requirement for covered text providers be the requirement to provide georouting data to the 988 Lifeline?

12. Commenters indicate that some progress has been made, including by CMRS providers, to identify a georouting solution for covered 988 texts, particularly for SMS. We are interested in hearing from CMRS providers and other involved parties on the details of such solutions and progress. We also seek information on any parties beyond the CMRS providers, other covered text providers, and the Lifeline Administrator and/or its vendors that would need to participate in a solution for georouting SMS texts that are currently sent to 988. For example, Intrado Life & Safety states that georouting to the 988 Lifeline is “easily achievable . . . by applying the current routing infrastructure for text-to-911 and changing to support the digits `988' in the Text Control Centers that Intrado Life & Safety and Comtech maintain for text-to-911.” We seek comment on the viability of this and any other solutions for providing georouting data to the 988 Lifeline with SMS texts, and the work that still needs to be done to timely deploy a solution on wireless networks. Consistent with our findings in the Third Report and Order, (FCC 24-111), published elsewhere in the Federal Register , at this time we do not seek comment on georouting solutions for 988 covered texts that would bypass the initial direct and centralized routing system of the 988 Lifeline. In what ways are any proposed solutions for providing georouting data with covered 988 texts similar to or different from the solutions proposed for providing georouting data with wireless calls to 988? Can the work done by CMRS providers either to implement georouting for 988 voice calls or to deploy text-to-911 be leveraged for text-to-988? Are such solutions cost-effective and technologically feasible for both nationwide and non-nationwide CMRS providers and any other impacted covered text providers? What is the time frame for a pilot or testing any solutions, and what would be the anticipated time frame for moving from testing to operational deployment? We also seek data, documents, and other information that provide details about the current status of any proposed georouting solutions for covered 988 texts.

13. In addition, we seek comment on what technical challenges may arise in providing georouting data with covered 988 text messages, and specifically what challenges would arise for CMRS providers and any other impacted covered text providers that originate SMS text messages to provide georouting data with SMS text messages to 988. Commenters disagree on the difficulty of implementing a georouting solution for texts to 988. Some commenters allude to technical challenges but fail to provide specific details as to the nature and scope of such challenges. We seek additional insights or comments on any such challenges.

14. We disagree with arguments that the Commission should not adopt georouting requirements for SMS text messages to 988 based on the same reasoning underlying our decision to defer consideration of 911 location-based routing requirements for SMS, namely, the absence of supporting standards and that not all local centers can receive texts. While we did consider such factors in the Location-Based Routing Order, 89 FR 18488 (Mar. 13, 2024), the record in that proceeding also indicated that implementing location-based routing for texts to 911 would require extensive retrofitting of legacy SMS networks. No similar record exists in this proceeding, and indeed, Intrado Life & Safety argues that implementing georouting for text-to-988 could be as simple as changes “to support the digits `988' in the Text Control Centers that Intrado Life & Safety and Comtech maintain for text-to-911” with no other provider-required changes for implementation. A Text Control Center (TCC) is a controlling functional element specified in a relevant standard for text-to-911. The TCC has the responsibility to “(1) convert various protocols and act as a gateway; (2) request location that may be used for routing; (3) request routing instructions; and (4) initiate a dialogue with the PSAP through the appropriate interworking function of the TCC. When the TCC receives an initial text message, it obtains location from the [location server]. It then uses that location to obtain routing instructions from the [routing server]. Then, the TCC converts the text message to an appropriate protocol and initiates a dialogue with the [Public Safety Answering Point] (via the emergency services network) through the appropriate interworking function of the TCC.” Even if there are no existing standards for the interface to transmit location information between the Short Message Service Center (SMSC) and the TCC for texts to 988, the TCC is likely able to retrieve the location of the text to 988 from the CMRS provider's Gateway Mobile Location Center (GMLC) using existing practices for texts to 911. A SMSC is a network element of a Commercial Mobile Service Provider network which distributes SMS messages. A GMLC is the point of interface between the GSM wireless network and the Emergency Services Network. The GMLC retrieves, forwards, stores and controls position data associated with wireless callers. We seek comment on this analysis. Further, 911 location-based routing and georouting for 988 use different granularity of data and different entities perform the routing function. 911 location-based routing uses precise data on the location of the device to route 911 calls to the appropriate destination, whereas georouting for 988 can be accomplished with less granular information, such as the Federal Information Processing Series (FIPS) code or wire center. For 911 calls and texts, covered text providers determine the destination for routing based on available location information; for 988 calls and texts, it remains the purview of the 988 Lifeline and its administrator to route 988 calls and texts based on location data provided by the provider. CTIA's argument that we should not extend georouting requirements to covered 988 text messages based on our actions in the 911 location-based routing proceeding are unpersuasive due to these technical differences between these routing methodologies and differences in the record thus far received. We seek comment on this analysis.

15. Providing georouting data. We seek comment on our proposed requirement for covered text providers to provide georouting data, when available, with covered 988 text messages to the Lifeline Administrator sufficient to allow routing of the covered 988 text message by the Lifeline Administrator to the appropriate crisis center based on the geographic area where the handset is located at the time the covered 988 text is initiated. As with voice calls, SAMHSA, the agency with oversight of the 988 Lifeline Administrator, must ultimately determine the routing data that it will deem acceptable and that it will require the 988 Lifeline to configure its systems to read. What georouting data should covered text providers be required to provide with covered 988 texts? Would georouting data for covered 988 texts differ from the data required for georouting voice calls to 988? In our proposed rule, we require that covered text providers provide georouting data with covered 988 texts “when available.” Is such a limitation necessary? Would it be preferable to require covered text providers to provide georouting data with texts to 988 “when technically feasible”? Given that the Commission currently only requires covered text providers to send SMS text messages to the 988 Lifeline, are there any situations in which georouting data for SMS texts would not be available, and if so, what are such situations? Are there situations in which CMRS providers in particular do not have access to geolocation data for SMS text messages to the 988 Lifeline, and how frequently do such situations occur? Are there certain types of covered text providers that originate SMS texts for which it is technologically infeasible to obtain georouting data, and if so, what are those types of providers? We invite commenters to provide additional data in the record on the number and/or percentage of covered 988 texts originated by CMRS providers and other covered text providers. Do covered text providers besides CMRS providers have access to geolocation data, defined in this proceeding as “cell-based”? Do they have access to other kinds of location data? If so, how is that location data generated and with what level of resolution?

16. What steps do the Lifeline Administrator and/or its vendors need to take to be ready to receive georouting data for texts? What specific functions would the Lifeline Administrator and/or its service providers need to perform to successfully route texts to geographically appropriate crisis centers, once received by the 988 Lifeline's centralized routing platform? How many crisis centers can currently accept texts to 988, and are there plans to expand availability of local text resources? How would the 988 Lifeline determine the availability of a local crisis center to accept texts? Would texts to 988 route to a backup crisis center if no local crisis center was available? As the availability of text capabilities at local crisis centers grows, will routing requirements change, and how would the Lifeline Administrator update its routing?

17. Currently, individuals can text “pride” to 988 to be directly connected to an LGBTQI+ trained counselor or “ayuda” to connect with a Spanish-speaking counselor, and veterans and service members who text 988 will be redirected to text 838255 to reach the Veterans Crisis Line. We seek comment on whether any georouting solutions for texts to 988 that are under development contemplate routing for such texts, and whether georouting solutions are needed when a text-to-988 user selects a specialized service.

18. Implementation time frame. We propose that covered text providers comply with the proposed text-to-988 georouting requirements by a uniform implementation deadline of six months from the effective date of final rules. We seek comment on this approach. A six-month time frame is consistent with the Commission's requirement in the 911 context that covered text providers route texts to 911 to the appropriate PSAP within six months. We believe that enabling georouting for texts to 988 should occur swiftly in order to provide improved service to text-to-988 users, and that rapid implementation will minimize confusion for both providers and individuals texting 988. Is six months an adequate amount of time for covered text providers to comply with the proposed requirements? If not, why? Should we adopt different compliance time frames for different kinds of covered text providers, such as nationwide or non-nationwide CMRS providers, or other interconnected text providers, as INCOMPAS suggests? We note that the Commission has previously provided uniform timelines for texting requirements across covered text providers and has declined to provide different timelines for different kinds of covered text providers. Is the situation different with georouting such that we should consider a different timeframe?

19. We ask that commenters identify any work to comply with the proposed requirements and the estimated time to complete that work. Further, we ask that commenters identify any technical, financial, operational, legal, or other factors that may influence the time frame for delivering georouting data with all covered 988 text messages. At this time, the Commission only requires covered text providers to transmit SMS text messages to 988. If the Commission determines that covered text providers must support formats besides SMS, when should covered text providers be required to come into compliance with georouting requirements for new covered 988 text message formats? When do the Lifeline Administrator and/or its vendors anticipate that it could receive and begin using georouting data? Should we make compliance with the proposed requirements conditional on the ability of the Lifeline Administrator and/or its vendors to receive and use georouting data? Should we make the georouting requirements for covered 988 text messages effective six months after the Lifeline Administrator indicates that it can receive and use georouting data with text messages? Alternatively, should we make compliance conditional on the development of resources at the local level to respond to texts to 988?

20. We tentatively conclude that the Commission has authority under Title III of the Act and the 21st Century Communications and Video Accessibility Act of 2010 (CVAA) to adopt rules requiring covered text providers to deliver georouting data with covered 988 text messages, and we seek comment on this tentative conclusion. As discussed in the Text-to-988 Second Report and Order, 87 FR 398 (Jan. 5, 2022), Title III of the Act provides us a broad mandate to manage spectrum usage in the public interest. We believe Title III of the Act provides us sufficient authority to require CMRS providers to implement georouting for text-to-988 given the scope of the benefits we estimate will accrue as the result of these proposed rules. The CVAA grants us authority to adopt “other regulations . . . as are necessary to achieve reliable, interoperable communication that ensures access by individuals with disabilities to an internet protocol-enabled emergency network.” The Commission has previously concluded that the 988 Lifeline constitutes an emergency network and that text-to-988 service provides access to emergency services for people with disabilities, including those with hearing and speech disabilities. As a result, we believe the CVAA provides us authority to require interconnected text providers to implement georouting for text-to-988 service because such steps improve access for people with disabilities to the 988 network. We seek comment on our analysis and tentative conclusion.

21. In the Third Report and Order (FCC 24-111), published elsewhere in the Federal Register , we estimated benefits of $120 million from georouting wireless calls to the 988 Lifeline. We expect that layering on the capability to georoute texts to 988 and the data requirements entailed will add some incremental costs. We estimate five-year, text-to-988 georouting benefits of nearly $17 million. Wireless carriers have offered no specific, credible estimates of implementation costs. We seek comment on this analysis and encourage commenters to submit more granular data on costs and benefits.

22. Reduced Suicide Mortality. Suicide elicits shock, anguish, grief, and guilt among survivors. Imitators often follow suit, creating clusters that compound communities' suffering. While we lack the tools to quantify and monetize this burden on communities, we can acknowledge its vastness. Similarly, we cannot measure the full benefit of suicide prevention. We can, however, estimate what communities might be willing to pay to prevent suicide, more formally the value of reduced mortality risk (VRMR). We tentatively conclude that the VRMR for the ability to send texts to 988 is large and seek comment on this tentative conclusion and analysis.

23. In estimating the benefits for implementing georouting for covered texts to 988, we focus on the benefits that specifically would accrue to youth and young adults that have been exposed to text-to-988 misroutes. We seek comment on this approach. The record in this proceeding indicates that young Americans, who are disproportionately at risk for mental health crises, prefer communicating by text rather than calls. Studies tell us that children, on average, get their first cellphones by 11.6 years of age. By the age of 13, 95% percent of teenagers have access to a smartphone, and 97% of teens 15-17 years old own a smartphone. The American Foundation for Suicide Prevention cites a 2022 study's finding that “over three-quarters of the texts to the Crisis Text Line in one twelve-month period were initiated by individuals under the age of 25.” More precisely, 76% of 988 texts are generated by youth and young adults 24 and younger. Because 988 texts are routed using cellphone numbers, like voice calls to 988, some fraction of texts to 988 are bound to be misrouted. Heavy reliance on texting renders youth the demographic group most vulnerable to 988 text misrouting. The fraction of youth and young adults at risk is large. The Crisis Text Line's comments tell us that “[c]urrently, texts to 988 are routed utilizing cell phone area codes” and “the first six digits of the phone number of people reaching out to Crisis Text Line are accurate to their state location approximately 86% of the time.” From that statistic, we infer that the remaining 14% of texts routed by the first six digits of the originating device are inaccurate to their state location, or geographically mismatched. In 2022, there were nearly 72.5 million youth and young adults 17 and under, of whom 791 committed suicide after that year's July 16 launch of 988. Whether we allocate by number of months ( i.e., 6/12 = 0.5) or by total suicides for July-December ( i.e., 24,742/49,746 = 0.500008085), half of any age cohort's suicides can be attributed to July-December 2022. We do not know what fraction of youth outreach to 988 would be by text; conservatively, we assume one half. This implies about 55.4 (= 791 * 14%/2) young persons would have been exposed to text-to-988 misroutes. We seek comment on this analysis and encourage commenters to submit additional data on the benefits to implementing georouting for texts to 988.

24. Georouting texts could have reduced suicide mortality. The Crisis Text Line points out that “approximately less than 3% of all 988 contacts resulting (sic) in an emergency services intervention requiring local support,” meaning emergency intervention could have benefited at minimum about 1.66 (= 3% * 791 * 14%/2) youth suicide victims annually whose dispatch might be subject to delays due to misrouting. The comment record suggests that misrouting causes customized, local crisis-intervention services to arrive late or not at all, delaying effective interventions. We examine the consequences for suicide mortality of a minimal, one-minute delay in the effectiveness of texts to 988. Commission staff have previously estimated that a one-minute reduction in emergency response time can reduce mortality by 17%. A 17% reduction in the total number of deaths attributable to suicide among youth 17 and under with possible geographic mismatch would amount to about 0.28 (= 17% * 3% * 791 * 14%/2) fewer annual death due to suicide, a mortality-reduction risk for which Americans would collectively be willing to pay $3.5 (= 0.28 * $12.5) million annually. The present value of a five-year stream of such payments is $16.5 million. We use a VRMR of $12.5 million. The present value of five equal annual payments using OMB Circular A-4's discount rate of 2% is ~$16,500,000. We seek comment on this analysis and additional data we should consider.

25. Other Benefits and Possible Benefits Underestimation. We suspect that our tally underestimates the benefits of georouting texts to 988 for several other reasons and seek comment on our analysis herein. First, along with suicide reduction, it is expected that text-to-988 georouting will reduce suicide attempts and their accompanying medical, lost-work, and lost-quality-of-life costs. We have not estimated these benefits but seek comment on their validity and impact. Second, our reliance on the Crisis Text Line's assertion that the first six digits of the phone number are accurate to the user's state location approximately 86% of the time is likely an overestimation of the accuracy rate of texts reaching the appropriate 988 crisis center. We consider, in particular, that in large, populous states such as California, Florida, New York, and Texas—the four states that are collectively home to more than one-third of U.S. population—there are vast economic, cultural, and language differences within their borders that could hinder effective suicide intervention if the text is not routed to the 988 crisis center serving the location of the text user. Even though we rely on the Crisis Text Line's estimation, our analysis likely overstates the percentage of texts that are currently routed to the appropriate 988 crisis center. As a result, the benefits of our proposed intervention are likely underestimated. We seek comment on this assumption and our rationale.

26. Another reason our tally may underestimate the benefits of georouting texts to 988 is that youths 17 and under are the age cohort losing the greatest number of productive years of life to suicide. In 2022 alone, the 1,582 suicides among youth 17 and under cost the U.S. 78,866 potential years of life before age 65, the typical retirement age. Our age-agnostic valuation of reduced mortality may not fully capture this loss. In addition, 24% of texts to 988 are generated by adults; therefore, by excluding adults we overlook the prevention a sizable fraction of the 47,891 suicides among those 18 and older, for whom we proffer no estimated benefits of mortality reduction. Further, we do include morbidity and property costs associated with unsuccessful suicide attempts. Finally, we have not reckoned at all with the vast, unquantifiable benefits of sparing victims' families, friends, and communities the emotional devastation of losing children to suicide. We seek comment on the magnitude of any benefits that we may have overlooked or underestimated. More generally, we seek comment on our benefits estimates and the methodology underlying them. In particular, we seek comment on the assumptions used to identify and estimate the number of text-to-988 misroutes among youth 17 and under. We seek comment on the number of 988 misroutes occurring among adults 18 and older. We also seek comment on the extent of text-to-988 misroutes that may be occurring among LGBTQI+ individuals, racial and ethnic minorities, veterans, and other communities at disproportionately greater risk of suicide.

27. AT&T, the Crisis Text Line, and CTIA warn of significant text-to-988 implementation challenges, both on the processing and receiving ends of 988 texts, and urge the Commission to either delay or altogether refrain from requiring text-to-988 capability. INCOMPAS advocates a four-year text-to-988 implementation timeline for non-nationwide wireless providers. According to Intrado Life & Safety, on the other hand, “developing a text-to-988 solution for both the current 988 Lifeline network and state ESInets tells us the problem is easily addressable from a technical standpoint. Implementing text-to-988 is easily achievable through either the current 988 Lifeline or to a state's ESInet by applying the current routing infrastructure for text-to-911 and changing to support the digits `988' in the Text Control Centers that Intrado Life & Safety and Comtech maintain for text-to-911.” Intrado Life & Safety continues, “[p]roviders should not require any other changes for implementation. The only credible barrier to text-to-988 is that the 988 Lifeline network is likely not currently capable of georouting text-to-988 calls, but this potential barrier disappears if providers leverage the states' existing NG911 infrastructure.” Given competing claims regarding implementation costs, we seek comment on credible, specific estimates of implementation costs and how such costs may vary by type or size of provider, network technology, or along any other relevant dimension. What are the key costs of setting up geolocation for covered 988 texts? What are the costs for covered text providers to have the capability to provide georouting data with covered 988 text messages? What are the costs for covered text providers to provide georouting data with covered 988 text messages, when available, to the 988 Lifeline? What aspects of implementation of georouting for 988 voice calls will transfer to geolocation for covered 988 texts at minimal additional cost? We seek comment on the cost to providers of directly implementing our proposed requirements, or alternatively of purchasing the required services from a third-party. What costs are associated with Text Control Centers, if such a solution is chosen by covered text providers? We also seek detailed descriptions of the technical barriers to implementing georouting for text-to-988 and specific, itemized estimates of the costs of overcoming those barriers, if possible. We seek detailed descriptions of the nature and costs of any proposed technically feasible solutions to implement text-to-988 and their accompanying timelines.

28. Digital Equity. The Commission, as part of its continuing effort to advance digital equity for all, including people of color, persons with disabilities, persons who live in rural or Tribal areas, and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality, invites comments on any equity-related considerations and benefits (if any) that may be associated with the proposals and issues discussed herein. Specifically, we seek comment on how our proposals may promote or inhibit advances in diversity, equity, inclusion, and accessibility, as well as the scope of the Commission's relevant legal authority.

29. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the policies and rules proposed in the Implementation of the National Suicide Hotline Improvement Act of 2018, Third Further Notice of Proposed Rulemaking ( FNPRM ). Written public comments are requested on the IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments in the FNPRM. The Commission will send a copy of the FNPRM, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the FNPRM and IRFA (or summaries thereof) will be published in the Federal Register .

30. In the FNPRM, we propose to require 988 covered text providers to support georouting in order to ensure that the 988 Lifeline may route covered 988 text messages to the appropriate local crisis center and enhance the support and resources available to text users in crisis. Currently, covered 988 text messages are routed to local crisis centers using information conveyed by the number assigned to the device, such as the area code, which in many cases will not reflect the current location of the device user. Mental health and crisis counseling experts have opined that connecting callers in crisis with local crisis centers is important to connect life-saving services to those in need of public health and safety resources and enable them to speak with local counselors who may be more familiar with cultural issues or community stressors in the caller's area. To better connect 988 text users with local crisis resources, we propose to adopt and seek comment on a two-part requirement for covered text providers to: (1) have the capability to provide georouting data with covered 988 text messages to the Lifeline Administrator; and (2) provide georouting data, when available, with covered 988 text messages to the Lifeline Administrator. Covered text providers would be required to comply with this requirement six months from the effective date of final rules.

31. The proposed action is authorized under §§ 1, 2, 4, 201, 218, 251(e), 301, 303, 307, 309(a), 316, 332, and 615c of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154, 201, 218, 251(e), 301, 303, 307, 309(a), 316, 332, and 615c.

32. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the proposed rules and by the rule revisions on which the Notice seeks comment, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A “small-business concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

33. Small Businesses, Small Organizations, Small Governmental Jurisdictions. Our actions, over time, may affect small entities that are not easily categorized at present. We therefore describe, at the outset, three broad groups of small entities that could be directly affected herein. First, while there are industry specific size standards for small businesses that are used in the regulatory flexibility analysis, according to data from the SBA Office of Advocacy, in general a small business is an independent business having fewer than 500 employees. These types of small businesses represent 99.9% of all businesses in the United States, which translates to 33.2 million businesses.

34. Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000 or less to delineate its annual electronic filing requirements for small exempt organizations. Nationwide, for tax year 2022, there were approximately 530,109 small exempt organizations in the U.S. reporting revenues of $50,000 or less according to the registration and tax data for exempt organizations available from the IRS.

35. Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2022 Census of Governments indicate there were 90,837 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number, there were 36,845 general purpose governments (county, municipal, and town or township) with populations of less than 50,000 and 11,879 special purpose governments (independent school districts) with enrollment populations of less than 50,000. Accordingly, based on the 2022 U.S. Census of Governments data, we estimate that at least 48,724 entities fall into the category of “small governmental jurisdictions.”

36. Wired Telecommunications Carriers. The U.S. Census Bureau defines this industry as establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired communications networks. Transmission facilities may be based on a single technology or a combination of technologies. Establishments in this industry use the wired telecommunications network facilities that they operate to provide a variety of services, such as wired telephony services, including VoIP services, wired (cable) audio and video programming distribution, and wired broadband internet services. By exception, establishments providing satellite television distribution services using facilities and infrastructure that they operate are included in this industry. Wired Telecommunications Carriers are also referred to as wireline carriers or fixed local service providers.

37. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 4,590 providers that reported they were engaged in the provision of fixed local services. Of these providers, the Commission estimates that 4,146 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

38. Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to local exchange services. Providers of these services include both incumbent and competitive local exchange service providers. Wired Telecommunications Carriers is the closest industry with an SBA small business size standard. Wired Telecommunications Carriers are also referred to as wireline carriers or fixed local service providers. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 4,590 providers that reported they were fixed local exchange service providers. Of these providers, the Commission estimates that 4,146 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

39. Incumbent Local Exchange Carriers (Incumbent LECs). Neither the Commission nor the SBA have developed a small business size standard specifically for incumbent local exchange carriers. Wired Telecommunications Carriers is the closest industry with an SBA small business size standard. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms in this industry that operated for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 1,212 providers that reported they were incumbent local exchange service providers. Of these providers, the Commission estimates that 916 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, the Commission estimates that the majority of incumbent local exchange carriers can be considered small entities.

40. Competitive Local Exchange Carriers (CLECs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to local exchange services. Providers of these services include several types of competitive local exchange service providers. Wired Telecommunications Carriers is the closest industry with a SBA small business size standard. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 3,378 providers that reported they were competitive local service providers. Of these providers, the Commission estimates that 3,230 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

41. Interexchange Carriers (IXCs). Neither the Commission nor the SBA have developed a small business size standard specifically for Interexchange Carriers. Wired Telecommunications Carriers is the closest industry with a SBA small business size standard. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 127 providers that reported they were engaged in the provision of interexchange services. Of these providers, the Commission estimates that 109 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, the Commission estimates that the majority of providers in this industry can be considered small entities.

42. Local Resellers. Neither the Commission nor the SBA have developed a small business size standard specifically for Local Resellers. Telecommunications Resellers is the closest industry with a SBA small business size standard. The Telecommunications Resellers industry comprises establishments engaged in purchasing access and network capacity from owners and operators of telecommunications networks and reselling wired and wireless telecommunications services (except satellite) to businesses and households. Establishments in this industry resell telecommunications; they do not operate transmission facilities and infrastructure. Mobile virtual network operators (MVNOs) are included in this industry. The SBA small business size standard for Telecommunications Resellers classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that 1,386 firms in this industry provided resale services for the entire year. Of that number, 1,375 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 207 providers that reported they were engaged in the provision of local resale services. Of these providers, the Commission estimates that 202 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

43. Toll Resellers. Neither the Commission nor the SBA have developed a small business size standard specifically for Toll Resellers. Telecommunications Resellers is the closest industry with a SBA small business size standard. The Telecommunications Resellers industry comprises establishments engaged in purchasing access and network capacity from owners and operators of telecommunications networks and reselling wired and wireless telecommunications services (except satellite) to businesses and households. Establishments in this industry resell telecommunications; they do not operate transmission facilities and infrastructure. Mobile virtual network operators (MVNOs) are included in this industry. The SBA small business size standard for Telecommunications Resellers classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that 1,386 firms in this industry provided resale services for the entire year. Of that number, 1,375 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 457 providers that reported they were engaged in the provision of toll services. Of these providers, the Commission estimates that 438 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

44. Other Toll Carriers. Neither the Commission nor the SBA has developed a definition for small businesses specifically applicable to Other Toll Carriers. This category includes toll carriers that do not fall within the categories of interexchange carriers, operator service providers, prepaid calling card providers, satellite service carriers, or toll resellers. Wired Telecommunications Carriers is the closest industry with a SBA small business size standard. The SBA small business size standard for Wired Telecommunications Carriers classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms in this industry that operated for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 90 providers that reported they were engaged in the provision of other toll services. Of these providers, the Commission estimates that 87 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

45. Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed a small business size standard specifically for prepaid calling card providers. Telecommunications Resellers is the closest industry with a SBA small business size standard. The Telecommunications Resellers industry comprises establishments engaged in purchasing access and network capacity from owners and operators of telecommunications networks and reselling wired and wireless telecommunications services (except satellite) to businesses and households. Establishments in this industry resell telecommunications; they do not operate transmission facilities and infrastructure. Mobile virtual network operators (MVNOs) are included in this industry. The SBA small business size standard for Telecommunications Resellers classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that 1,386 firms in this industry provided resale services for the entire year. Of that number, 1,375 firms operated with fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 62 providers that reported they were engaged in the provision of prepaid card services. Of these providers, the Commission estimates that 61 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

46. Wireless Telecommunications Carriers (except Satellite). This industry comprises establishments engaged in operating and maintaining switching and transmission facilities to provide communications via the airwaves. Establishments in this industry have spectrum licenses and provide services using that spectrum, such as cellular services, paging services, wireless internet access, and wireless video services. The SBA size standard for this industry classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that there were 2,893 firms in this industry that operated for the entire year. Of that number, 2,837 firms employed fewer than 250 employees. Additionally, based on Commission data in the 2022 Universal Service Monitoring Report, as of December 31, 2021, there were 594 providers that reported they were engaged in the provision of wireless services. Of these providers, the Commission estimates that 511 providers have 1,500 or fewer employees. Consequently, using the SBA's small business size standard, most of these providers can be considered small entities.

47. Cable and Other Subscription Programming. The U.S. Census Bureau defines this industry as establishments primarily engaged in operating studios and facilities for the broadcasting of programs on a subscription or fee basis. The broadcast programming is typically narrowcast in nature ( e.g., limited format, such as news, sports, education, or youth-oriented). These establishments produce programming in their own facilities or acquire programming from external sources. The programming material is usually delivered to a third party, such as cable systems or direct-to-home satellite systems, for transmission to viewers. The SBA small business size standard for this industry classifies firms with annual receipts less than $47 million as small. Based on U.S. Census Bureau data for 2017, 378 firms operated in this industry during that year. Of that number, 149 firms operated with revenue of less than $25 million a year and 44 firms operated with revenue of $25 million or more. Based on this data, the Commission estimates that a majority of firms in this industry are small.

48. Cable Companies and Systems (Rate Regulation). The Commission has developed its own small business size standard for the purpose of cable rate regulation. Under the Commission's rules, a “small cable company” is one serving 400,000 or fewer subscribers nationwide. Based on industry data, there are about 420 cable companies in the U.S. Of these, only seven have more than 400,000 subscribers. In addition, under the Commission's rules, a “small system” is a cable system serving 15,000 or fewer subscribers. Based on industry data, there are about 4,139 cable systems (headends) in the U.S. Of these, about 639 have more than 15,000 subscribers. Accordingly, the Commission estimates that the majority of cable companies and cable systems are small.

49. Cable System Operators (Telecom Act Standard). The Communications Act of 1934, as amended, contains a size standard for a “small cable operator,” which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than one percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” For purposes of the Telecom Act Standard, the Commission determined that a cable system operator that serves fewer than 498,000 subscribers, either directly or through affiliates, will meet the definition of a small cable operator. Based on industry data, only six cable system operators have more than 498,000 subscribers. Accordingly, the Commission estimates that the majority of cable system operators are small under this size standard. We note however, that the Commission neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million. Therefore, we are unable at this time to estimate with greater precision the number of cable system operators that would qualify as small cable operators under the definition in the Communications Act.

50. All Other Telecommunications. This industry is comprised of establishments primarily engaged in providing specialized telecommunications services, such as satellite tracking, communications telemetry, and radar station operation. This industry also includes establishments primarily engaged in providing satellite terminal stations and associated facilities connected with one or more terrestrial systems and capable of transmitting telecommunications to, and receiving telecommunications from, satellite systems. Providers of internet services ( e.g. dial-up ISPs) or Voice over internet Protocol (VoIP) services, via client-supplied telecommunications connections are also included in this industry. The SBA small business size standard for this industry classifies firms with annual receipts of $40 million or less as small. U.S. Census Bureau data for 2017 show that there were 1,079 firms in this industry that operated for the entire year. Of those firms, 1,039 had revenue of less than $25 million. Based on this data, the Commission estimates that the majority of “All Other Telecommunications” firms can be considered small.

51. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment. The SBA small business size standard for this industry classifies businesses having 1,250 employees or less as small. U.S. Census Bureau data for 2017 show that there were 656 firms in this industry that operated for the entire year. Of this number, 624 firms had fewer than 250 employees. Thus, under the SBA size standard, the majority of firms in this industry can be considered small.

52. Semiconductor and Related Device Manufacturing. This industry comprises establishments primarily engaged in manufacturing semiconductors and related solid state devices. Examples of products made by these establishments are integrated circuits, memory chips, microprocessors, diodes, transistors, solar cells and other optoelectronic devices. The SBA small business size standard for this industry classifies entities having 1,250 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 729 firms in this industry that operated for the entire year. Of this total, 673 firms operated with fewer than 250 employees. Thus under the SBA size standard, the majority of firms in this industry can be considered small.

53. Software Publishers. This industry comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers. These establishments may design, develop, and publish, or publish only. The SBA small business size standard for this industry classifies businesses having annual receipts of $47 million or less as small. U.S. Census Bureau data for 2017 indicate that 7,842 firms in this industry operated for the entire year. Of this number 7,226 firms had revenue of less than $25 million. Based on this data, we conclude that a majority of firms in this industry are small.

54. Internet Service Providers (Non-Broadband). Internet access service providers using client-supplied telecommunications connections ( e.g., dial-up ISPs) as well as VoIP service providers using client-supplied telecommunications connections fall in the industry classification of All Other Telecommunications. The SBA small business size standard for this industry classifies firms with annual receipts of $40 million or less as small. For this industry, U.S. Census Bureau data for 2017 show that there were 1,079 firms in this industry that operated for the entire year. Of those firms, 1,039 had revenue of less than $25 million. Consequently, under the SBA size standard a majority of firms in this industry can be considered small.

55. Wired Broadband Internet Access Service Providers (Wired ISPs). Providers of wired broadband internet access service include various types of providers except dial-up internet access providers. Wireline service that terminates at an end user location or mobile device and enables the end user to receive information from and/or send information to the internet at information transfer rates exceeding 200 kilobits per second (kbps) in at least one direction is classified as a broadband connection under the Commission's rules. Wired broadband internet services fall in the Wired Telecommunications Carriers industry. The SBA small business size standard for this industry classifies firms having 1,500 or fewer employees as small. U.S. Census Bureau data for 2017 show that there were 3,054 firms that operated in this industry for the entire year. Of this number, 2,964 firms operated with fewer than 250 employees.

56. Additionally, according to Commission data on internet access services as of June 30, 2019, nationwide there were approximately 2,747 providers of connections over 200 kbps in at least one direction using various wireline technologies. The Commission does not collect data on the number of employees for providers of these services, therefore, at this time we are not able to estimate the number of providers that would qualify as small under the SBA's small business size standard. However, in light of the general data on fixed technology service providers in the Commission's 2022 Communications Marketplace Report, we believe that the majority of wireline internet access service providers can be considered small entities.

57. Wireless Broadband Internet Access Service Providers (Wireless ISPs or WISPs). Providers of wireless broadband internet access service include fixed and mobile wireless providers. The Commission defines a WISP as “[a] company that provides end-users with wireless access to the internet[.]” Wireless service that terminates at an end user location or mobile device and enables the end user to receive information from and/or send information to the internet at information transfer rates exceeding 200 kilobits per second (kbps) in at least one direction is classified as a broadband connection under the Commission's rules. Neither the SBA nor the Commission have developed a size standard specifically applicable to Wireless Broadband internet Access Service Providers. The closest applicable industry with an SBA small business size standard is Wireless Telecommunications Carriers (except Satellite). The SBA size standard for this industry classifies a business as small if it has 1,500 or fewer employees. U.S. Census Bureau data for 2017 show that there were 2,893 firms in this industry that operated for the entire year. Of that number, 2,837 firms employed fewer than 250 employees.

58. Additionally, according to Commission data on internet access services as of June 30, 2019, nationwide there were approximately 1,237 fixed wireless and 70 mobile wireless providers of connections over 200 kbps in at least one direction. The Commission does not collect data on the number of employees for providers of these services, therefore, at this time we are not able to estimate the number of providers that would qualify as small under the SBA's small business size standard. However, based on data in the Commission's 2022 Communications Marketplace Report on the small number of large mobile wireless nationwide and regional facilities-based providers, the dozens of small regional facilities-based providers and the number of wireless mobile virtual network providers in general, as well as on terrestrial fixed wireless broadband providers in general, we believe that the majority of wireless internet access service providers can be considered small entities.

59. All Other Information Services. This industry comprises establishments primarily engaged in providing other information services (except news syndicates, libraries, archives, internet publishing and broadcasting, and Web search portals). The SBA small business size standard for this industry classifies firms with annual receipts of $47 million or less as small. U.S. Census Bureau data for 2017 show that there were 704 firms in this industry that operated for the entire year. Of those firms, 556 had revenue of less than $25 million. Consequently, we estimate that the majority of firms in this industry are small entities.

60. The FNPRM proposes and seeks comment on implementing new georouting rules for covered 988 text messages, that if adopted, may impose new or modified compliance obligations on small entities. In particular, we propose to require covered text providers to have the capability to provide and to actually provide georouting data to the 988 Lifeline with covered texts, when such information is available. We also propose that covered text providers be subject to georouting requirements to the same extent that they are currently required to send covered 988 texts to the 988 Lifeline. Covered text providers would be required to comply with this requirement six months from the effective date of final rules. In addition, we tentatively conclude that, at a minimum, Commercial Mobile Radio Service (CMRS) providers must support georouting for Short Message Service (SMS) text formats to the Lifeline.

61. The record in the FNPRM indicates small providers may face various barriers to compliance, however it does not currently contain detailed information on the costs for covered text providers to implement georouting for covered 988 text messages. Therefore, at this time, the Commission is not in a position to determine whether implementation of georouting for covered 988 text messages would result in significant costs for covered text providers. To help the Commission more fully evaluate the cost of compliance, we seek additional detailed information on various cost issues implicated by our proposed rules. Specifically, we have requested information on technological challenges and the costs for covered text providers to implement georouting for covered 988 text messages. We expect the information that we receive in response to our requested cost inquiries will help the Commission identify and evaluate compliance costs and burdens for small entities that may result from the proposals and inquiries we make in the FNPRM to implement georouting for covered 988 text messages.

62. The RFA requires an agency to describe any significant alternatives that could minimize impacts to small entities that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for such small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.

63. In the FNPRM, the Commission seeks comment from all entities, including small entities, regarding the impact of the proposed rules on small entities. The Commission seeks comment on the impact, cost or otherwise, that requiring georouting for text-to-988 will impose on regional and rural carriers and small businesses. The Commission also seeks comment on whether to limit the scope of the georouting rule to one or more specific text formats, such as SMS, or to certain types of covered text providers, such as CMRS providers or covered text providers that have access to cellular networks. We will also consider whether the rule should require covered text providers provide georouting data with covered 988 texts “when available” as proposed, or instead provide georouting data with texts to 988 “when technically feasible.” Further, the Commission asks whether to extend compliance time frames for different kinds of covered text providers, such as nationwide or non-nationwide CMRS providers or other kinds of interconnected text providers.

64. None.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 52 as follows:

The revisions and additions read as follows:

FMCSA organizes this NPRM as follows:

If you submit a comment, please include the docket number for this NPRM (FMCSA-2023 - 0257), indicate the specific section of this document to which your comment applies, and provide a reason for each suggestion or recommendation. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so FMCSA can contact you if there are questions regarding your submission.

To submit your comment online, go to https://www.regulations.gov/docket/FMCSA-2023-0257/document, click on this NPRM, click “Comment,” and type your comment into the text box on the following screen.

If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing.

FMCSA will consider all comments and material received during the comment period.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (5 United States Code (U.S.C.) 552), CBI is exempt from public disclosure. If your comments responsive to the NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to the NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission that constitutes CBI as “PROPIN” to indicate it contains proprietary information. FMCSA will treat such marked submissions as confidential under the Freedom of Information Act, and they will not be placed in the public docket of the NPRM. Submissions containing CBI should be sent to Brian Dahlin, Chief, Regulatory Evaluation Division, Office of Policy, FMCSA, 1200 New Jersey Avenue SE, Washington, DC 20590-0001 or via email at brian.g.dahlin@dot.gov. At this time, you need not send a duplicate hardcopy of your electronic CBI submissions to FMCSA headquarters. Any comments FMCSA receives not specifically designated as CBI will be placed in the public docket for this rulemaking.

To view any documents mentioned as being available in the docket, go to https://www.regulations.gov/docket/FMCSA-2023-0257/document and choose the document to review. To view comments, click this NPRM, then click “Browse Comments.” If you do not have access to the internet, you may view the docket online by visiting Dockets Operations on the ground floor of the DOT West Building, 1200 New Jersey Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. To be sure someone is there to help you, please call (202) 366-9317 or (202) 366-9826 before visiting Dockets Operations.

In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its regulatory process. DOT posts these comments, including any personal information the commenter provides, to www.regulations.gov as described in the system of records notice DOT/ALL 14 (Federal Docket Management System (FDMS)), which can be reviewed at https://www.transportation.gov/individuals/privacy/privacy-act-system-records-notices. The comments are posted without edit and are searchable by the name of the submitter.

Written comments and recommendations for the information collection discussed in this NPRM should be sent within 60 days of publication to www.reginfo.gov/public/do/PRAMain. Find this information collection by clicking the link that reads “Currently under Review—Open for Public Comments.”

Property brokers match motor carriers with shippers, which can create new business opportunities for motor carriers and transportation solutions for shippers. This business model can also lead to an asymmetry of information between parties, which in turn can affect the contracting process by limiting parties' ability to negotiate for their desired terms. 1 These risks can lead to market inefficiencies, such as decreased freight capacity or decreased market competition, which can arise when parties lack material information about the transaction. FMCSA and its predecessor agencies have attempted to address these problems by requiring property brokers to keep certain records of their transactions and make the records available to motor carriers and shippers involved in those transactions. Making the records available to the transacting parties, sometimes referred to as “broker transparency,” is meant to inform business decisions and enable self-policing of abuses that may arise.

The Agency has received rulemaking petitions and other input from the public, however, that indicate many motor carriers cannot review the brokers' transaction records as the broker recordkeeping regulation intends. Brokers often include provisions in their contracts with motor carriers that require motor carriers to waive their ability to review broker records. In addition, even without waiver clauses, motor carriers often face practical hurdles in accessing records that they should be able to review under the current regulations. As a result of the SBTC and OOIDA petitions, the Agency reviewed its property broker recordkeeping requirements and is proposing certain amendments to those requirements. The proposed amendments are intended to reinforce broker transparency for motor carriers and to better tailor the required contents of the records to the purpose of broker transparency.

The current and proposed regulations are based on the Agency's authority to regulate the procurement of interstate transportation, which includes authority over property brokers and their arrangement of transportation. The Agency has the authority to collect information from brokers and require them to keep certain records. The Agency also has authority over the registration of property brokers, and when registering them, to determine whether the broker is willing and able to comply with all applicable regulations, including the recordkeeping regulations. In exercising its authority over brokers, the Agency is required to provide for the protection of motor carriers and shippers. The proposed rule would use and implement this authority by revising the broker recordkeeping requirements to further protect motor carriers and promote efficiency within the motor carrier transportation system.

FMCSA proposes several amendments to 49 CFR 371.3, “Records to be kept by brokers.” The first proposed provision would require property brokers to keep their records in an electronic format. This provision would serve the purpose of broker transparency by making it easier for motor carriers and shippers to review broker records on request, and remotely, as compared to the current practice of some brokers who respond to transparency requests by making only physical records available at their principal place of business. The Agency believes that many brokers already maintain their records in an electronic format.

The second proposed provision would modernize and tailor the required contents of the records to better achieve broker transparency. The current requirement uses a distinction between brokerage and non-brokerage services, which is rooted in a previous regulatory approach. FMCSA proposes eliminating this distinction and instead requiring that the records contain, for each shipment in the transaction, all charges and payments connected to the shipment, including a description, amount, and date. This is substantially similar to the current requirement but removes the outdated distinction. The record would also be required to include any claims connected to the shipment, such as a shipper's claims for damage or delay. This amendment would ensure the parties have full visibility into the payments, fees, and charges associated with the transaction so they can resolve issues and disputes among themselves without resorting to costlier remedies.

The third proposed provision would clarify the obligation imposed on brokers to respond to requests for transaction records and the process parties must follow when requesting and supplying such records. The current regulation frames the broker transparency requirement as a right, given to the transacting parties, to review the records. The proposed amendment would reframe broker transparency as a regulatory duty imposed on brokers to provide records to the transacting parties.

The fourth proposed provision would require brokers to provide the records required to be maintained under § 371.3(a) within 48 hours when a party to the transaction requests those records. This provision is intended to ensure that the requesting party receives the records in a timely manner, to support the resolution of issues around service or payment.

Broker transparency is intended to enable efficient outcomes in the transportation industry by providing the material information necessary for the transacting parties to make informed business decisions. Broker transparency also supports the efficient resolution of disputes between parties. Though the current regulations are meant to provide broker transparency, the Agency has heard through numerous listening sessions and comments from motor carriers that broker transparency is rare in practice. The Agency believes the revisions to the regulation will make it more likely that brokers will comply with their regulatory duty to provide information. The Agency analyzes these potential benefits qualitatively and seeks further information and data from the public to better analyze the benefits.

Some motor carriers believe that increased broker transparency would have a material effect on negotiated freight rates. The Agency believes that other market factors, rather than the availability of additional information through broker transparency, are likely dominant in setting freight rates. However, the Agency has not ruled out the possibility that motor carriers and shippers could negotiate for better rates over time using the broker transparency information. The Agency seeks further comment on this issue.

The Agency believes that the cost of the proposed rule would be minimal. Based upon its interactions with brokers, the Agency believes that most brokers already keep records electronically and that these records already contain the information that would be required by the proposed rule. The Agency believes that brokers already provide information and documents, e.g., rate confirmation documents, to motor carriers. The Agency believes that these current practices can be adjusted, at relatively low cost, to provide broker transparency information within 48 hours of request. The Agency analyzes these potential costs qualitatively and seeks further information and data from the public to better analyze the costs. The Agency does not believe that this rule would be economically significant.

The Secretary of Transportation (Secretary) has general jurisdiction to establish regulations concerning the procurement by property brokers of for-hire transportation in interstate or foreign commerce (49 U.S.C. 13501). The Secretary is authorized to obtain information from motor carriers, brokers, and other related parties that the Secretary determines is necessary to ensure a transportation system that meets the needs of the United States (49 U.S.C. 13101 and 13301(b)).

The Secretary has broad authority to adopt regulations to carry out the requirements of the commercial statutes in Title 49 U.S.C., subtitle IV, part B (49 U.S.C. 13301(a)). Some of the needs articulated in the national transportation policy (49 U.S.C. 13101) include encouraging fair competition and reasonable rates for transportation by motor carriers of property; promoting efficiency in the motor carrier transportation system; enabling efficient and well-managed motor carriers to earn adequate profits, attract capital, and maintain fair wages and working conditions; and improving and maintaining a sound, safe, and competitive privately owned motor carrier system. The Secretary is also authorized to prescribe the form of any required records prepared or compiled by brokers, including those related to movement of traffic and receipts and expenditures of money, and the time period for preservation of such records (49 U.S.C. 14122). Furthermore, under 49 U.S.C. 13904(e), regulations applicable to brokers “shall provide for the protection of motor carriers and shippers by motor vehicle.”  2

In recent years, many motor carriers, industry-wide, have expressed concern about their inability to access records pertaining to their transactions with brokers. The inability to obtain these records from brokers has led to financial harm, including but not limited to, an inability to present a proper defense when shippers or brokers allege problems with a shipment. Because FMCSA's mandate under 49 U.S.C. 13904 specifically includes providing for the protection of motor carriers with respect to broker regulations, and because a records-transmittal regulation would protect both motor carriers and shippers, FMCSA's promulgation of such a regulation is authorized by 49 U.S.C. 13904(e).

This rulemaking is intended to address an asymmetry of information between brokers, shippers, and motor carriers that affects the ability of all parties to participate effectively in a fair, efficient transportation system. FMCSA intends to modernize regulations applicable to broker recordkeeping and disclosure while complying with the requirement in 49 U.S.C. 13904(e) to ensure that the regulations provide for the protection of motor carriers and shippers. FMCSA relies on the statutory authorities cited above.

Authority to carry out the functions and exercise the authorities cited above is delegated to the FMCSA Administrator under 49 CFR 1.87(a)(1)-(3) and (5)-(6).

FMCSA regulates property brokers, defined as persons who, for compensation, arrange or offer to arrange the transportation of property by an authorized motor carrier (49 CFR 371.2(a)). The property broker regulations include recordkeeping requirements, for each transaction, at 49 CFR 371.3 “Records to be kept by brokers.” A brokered transaction for transportation of property involves at least a shipper seeking to have the property transported, a carrier willing to transport the property, and a broker who arranges the transportation. There may be separate contracts between the broker and the shipper and between the broker and the carrier, but the broker, carrier, and shipper are all party to the same brokered transaction for the purpose of the broker recordkeeping regulation. The relationship between the parties is further explained in the Property Broker Practices NPRM (45 FR 31140, 31141, May 12, 1980). Under the broker recordkeeping regulation, FMCSA requires brokers to make certain transaction records available to the transacting parties, that is, the shipper, the motor carrier, and any other party to the brokered property transaction. The availability of this information is sometimes referred to as “broker transparency.” The term should not be misunderstood to mean public disclosure of the information, i.e., “public transparency.”

FMCSA proposes to amend the broker transparency requirement. FMCSA initiated the rulemaking based on the grant of two rulemaking petitions regarding broker transparency, and the Agency has also received input on the topic through several related actions. The petitions and related actions are summarized below. The broker transparency regulation has a long history, with several predecessor rules and regulations. The regulatory history is summarized below.

Congress tasked the Interstate Commerce Commission (ICC) with regulating the motor carrier industry in the Motor Carrier Act of 1935, which included regulating property brokers operating in the industry (Pub. L. 74-255). The ICC issued its initial rule regulating brokers in 1949 (14 FR 2833, May 28, 1949). The rule was based on an ICC report entitled Practices of Property Brokers (Ex Parte MC-39, 49 Motor Carrier Cases (MCC) 277 (May 16, 1949)). The report contemplated imposing a cap on broker commissions to address concerns over alleged excesses. The ICC postponed implementation of a cap because it lacked information to determine an appropriate upper limit. In the interim, the ICC believed that concerns over commissions could be addressed by having brokers maintain a public schedule of services with their maximum charges for brokerage services. The cap was not pursued further, and the interim solution persisted, as described in the follow-on report “Practices of Property Brokers” (Ex Parte MC-39, 53 MCC 633 (Dec. 27, 1951)).

The property broker regulations remained unmodified for several decades, except for a recodification that relocated them within Title 49, from part 167 to part 1045 (49 FR 20003, Dec. 20, 1967). On May 12, 1980, the ICC published an NPRM to revise the property broker regulations (45 FR 31140). This proposed rule sought to eliminate unnecessary regulations and to modify regulations that were unnecessarily restrictive. The intent generally aligned with the purpose of the Motor Carrier Act of 1980 (Pub. L. 96-296), which was not in force at the time, but which was enacted a few months later, on July 1, 1980. The ICC made this connection clear in the final rule published on October 17, 1980 (45 FR 68941). That rule explained that Congress had given the ICC the general mandate to open up the bargaining process between shippers and motor carriers, and it sought to remove unnecessary restrictions which might impede the free operation of the marketplace. The ICC viewed its revisions to the property broker regulations as consistent with those goals. The rulemaking put into place regulations that are substantially similar to FMCSA's current property broker regulations.

The final rule included a revised 49 CFR 1045.3, which had the same requirements as the current 49 CFR 371.3 in all significant respects, including the recordkeeping requirement placed on brokers and the right of each party to the transaction to review the record. In discussing the revisions to the required records in the NPRM, the ICC stated that the primary purpose of the recordkeeping requirements was to ascertain whether improper rebating activities were taking place, and it noted that the proposed rule also included revisions to the rebating rules (45 FR 31140). When the ICC issued the original property broker regulations, it was concerned with a form of indirect rebating where brokers would undercharge for services to shippers as a means to secure and control the shippers' traffic and make up for the undercharging by charging motor carriers instead (49 MCC 277, 317-18). In the 1980 NPRM, the ICC stated that this concern over indirect rebating was no longer valid, and it revised the rebating regulations accordingly (45 FR 31140, 31141).

After explaining the revisions to the required record contents, the ICC then explained the addition of the right-to-review requirement as a replacement for more complex requirements in §§ 1045.5, 1045.6, and 1045.10 (45 FR 31140). The ICC explained that § 1045.5, which required brokers to make their maximum prices for brokerage services publicly available and to adhere to those prices, could be rendered ineffective by brokers giving a wide price range instead (45 FR 31140, 31141). The same was true of § 1045.6, which set forth similar restrictions on prices for non-brokerage services. In removing these regulations in favor of the new § 1045.3(c), the ICC explained that the new regulation would enable parties to determine what portion of their bill was related to the broker's services (45 FR 31140, 31141). Section 1045.10 prohibited brokers from charging both the shipper and the carrier for a service without first advising both parties of the details of the charges. The ICC stated that this requirement was unnecessary and potentially burdensome since proper notification could delay service, particularly when the broker was trying to arrange freight transportation on an expedited basis, and it was replaced by the right to review in § 1045.3(c) (45 FR 31140, 31141). The broker regulations remain substantially the same as when they were amended in 1980.

In 1996, pursuant to the ICC Termination Act (Pub. L. 104-88), responsibility for certain transportation regulations was transferred from the ICC to DOT and delegated by DOT to FHWA (61 FR 54706, Oct. 21, 1996). This transfer and redesignation included part 1045, which was moved to part 371. Part 371 was subject to a minor technical amendment in 1997 but has remained otherwise unchanged since that time (62 FR 15417, Apr. 1, 1997). FMCSA assumed responsibility for part 371 when the Agency was created by the Motor Carrier Safety Improvement Act of 1999 (Pub. L. 106-159), and the Secretary subsequently delegated authority to administer 49 U.S.C. chapters 131, 133, 135, and 139 to the FMCSA Administrator (65 FR 220, Jan. 4, 2000).

On May 6, 2020, the Small Business in Transportation Coalition (SBTC) petitioned the Department to initiate a rulemaking amending the broker transparency regulation. SBTC described § 371.3, the broker transparency regulation, as providing motor carriers with a “right to know” the rate offered by the broker as a proportion of the rate paid by the shipper to the broker. SBTC raised concerns about the widespread practice of brokers including clauses in their contracts that waive a carrier's rights under § 371.3(c). Transparency is necessary for a market to operate in an ethical and fair manner, SBTC argued, and the prevalence of waiver clauses undercuts that transparency. As a remedy, the petition proposed prohibiting brokers from requiring waiver of broker transparency as a condition of doing business. SBTC's petition referenced the economic impacts of the COVID-19 national emergency, impacts that were being acutely felt when the petition was filed in May 2020.

On May 19, 2020, the Owner-Operator Independent Drivers Association (OOIDA) petitioned the Department to initiate a rulemaking amending the broker transparency regulation. The petition sought two changes to § 371.3. First, the petition proposed adding a requirement that brokers provide a copy of the transaction record required under § 371.3(a), in an electronic format, within 48 hours of the service being completed. Second, the petition proposed prohibiting brokers from including clauses in their contracts that waive motor carriers' rights to access the transaction records required under 371.3. The petition argued that the prevalence of waiver clauses and instances of retaliation by brokers against motor carriers seeking to exercise their rights under § 371.3(c) undercut the transparency envisioned by § 371.3. As with the SBTC petition, the OOIDA petition referenced the economic conditions affecting truckers at the time. Both petitions for rulemaking are included in the docket for this rulemaking.

FMCSA published a notice in the Federal Register on August 19, 2020, requesting public comment on OOIDA's and SBTC's rulemaking petitions (85 FR 51145). On October 16, 2020, the Agency extended the comment period by 30 days (85 FR 65898). The Agency received 1,391 comments on OOIDA's and SBTC's rulemaking petitions by the end of the extended comment period. The public commented on the transparency of charges and payments, broker margins, freedom of contract, pricing confidentiality, and the history of the broker transparency regulation. These issues are discussed below in Section VI.B., Comments and Agency Responses. On March 16, 2023, FMCSA granted OOIDA's and SBTC's rulemaking petitions. In the letters granting the SBTC and OOIDA petitions, FMCSA made clear that, while the Agency found good cause to open a rulemaking to amend 49 CFR 371.3, the proposed rule would not necessarily include the changes SBTC or OOIDA sought. The letters granting the petitions are available in the docket for this rulemaking.

In the time between the filing and grant of these petitions several related actions have provided the Agency with further information about broker transparency and wider context of the rulemaking. The related actions also indicate that the concerns surrounding broker transparency have persisted beyond the specific economic conditions of the freight industry in 2020.

Shortly after the OOIDA and SBTC petitions were filed, the Transportation Intermediaries Association (TIA) filed a rulemaking petition on August 4, 2020, seeking the elimination of § 371.3(c) and requesting guidance on dispatch services. Only the portion directed towards the elimination of § 371.3(c) is relevant to this rulemaking. 3 The TIA petition argued that the regulation is outdated given the changes in the brokered freight industry since the regulation was introduced in 1980. The petition further argued that broker transparency jeopardizes the confidentiality of proprietary pricing, and that motor carriers have sufficient information about prevailing rates to make informed business decisions without needing the records required by § 371.3.

The Agency published a request for public comments regarding TIA's petition on November 25, 2020 (85 FR 75280) and received 179 comments in response. These comments were substantially similar to those filed in response to the OOIDA and SBTC petitions. FMCSA denied TIA's petition on March 17, 2023. 4 In denying the petition, the Agency stated that TIA's proposal would be contrary to the stated transportation policy goals in 49 U.S.C. 13101, including promotion of fairness and efficiency in the transportation industry.

While the SBTC, OOIDA, and TIA petitions were pending, FMCSA held a public listening session on October 28, 2020, regarding the three petitions and property brokers in general (85 FR 64613, Oct. 13, 2020). FMCSA received 76 written comments in response to the Federal Register notice announcing the listening session. During the listening session, participants expressed concerns about freight rates, disclosure of confidential pricing information, motor carriers directly soliciting shippers, so-called “double brokering,” record-keeping costs, comparisons to other industries, charge backs, and detention time fees.

The Agency has received additional input from the public on the topic of broker transparency in several other contexts. In March 2023, the Agency held a listening session at the Mid-America Trucking Show (MATS) shortly after granting the SBTC and OOIDA petitions. 5 Despite the Agency's public statement that the listening session would focus on other broker matters, including financial responsibility, public commenters at MATS focused on broker transparency. Many of the transparency related concerns were consistent with those raised in the comments on the OOIDA and SBTC rulemaking petitions in 2020, suggesting that the issues raised at the time of the public comment period for those petitions had not subsided as of March 2023.

The topic of broker transparency has also appeared in the comments received on other proposed rules. 6 While comments are most useful to the Agency when directed towards the subject matter of the public notice to which they respond, the Agency acknowledges these ancillary comments as evidence of continuing concerns around broker transparency.

FMCSA proposes this rulemaking in response to OOIDA's and SBTC's petitions. The NPRM differs in certain ways from the provisions sought by OOIDA and SBTC, as discussed below. The rulemaking is also informed by the comments received in response to the petitions, as well as in the related actions detailed elsewhere in this NPRM. The comments, input from related actions, and the Agency's responses are discussed after the provisions of the proposed rulemaking.

To address the concerns over broker transparency raised in the rulemaking petitions and subsequent public comments, FMCSA proposes the following amendments to § 371.3, “Records to be kept by brokers,” presented in the order in which they would appear in the section. The Agency also proposes a conforming amendment to § 371.2, “Definitions.”

Sections 371.2 and 371.3 apply to all property brokers FMCSA regulates, as would the proposed amendments. Property brokers are divided between household goods (HHG) brokers, who arrange the transportation of personal property between homes, and non-HHG ( i.e., general freight) brokers. FMCSA believes that the broker transparency regulation should continue to apply equally to HHG brokers and general freight brokers, and the Agency has not identified any rationale for imposing different transparency requirements on HHG brokers versus general freight brokers. The comments received to date do not raise any broker transparency concerns unique to HHG brokers, and the Agency seeks comment on this issue.

FMCSA proposes requiring that the records covered by § 371.3(a) be kept in an electronic format to promote compliance with the broker transparency requirement in § 371.3(c). The Agency is aware of brokers avoiding meaningful compliance with § 371.3(c) by making the required records available for inspection only at their principal place of business, which often makes inspection by the motor carrier difficult or impossible. By requiring that the records be kept in an electronic format, the Agency intends to remedy this issue. Because the Agency, based on its interactions with various brokers, believes that most freight brokers already keep their records in an electronic format, this requirement should not impose a significant burden on these brokers. FMCSA believes that electronic recordkeeping may not be as common among household goods brokers and seeks comment on what burden, if any, would be imposed upon those brokers if electronic recordkeeping were required.

Within the recordkeeping requirements of § 371.3, paragraph (a) specifies the details that the records must contain. The Agency proposes the following revisions to ensure that the records are tailored to the needs of the parties, therefore better addressing the concerns of motor carriers while not imposing unnecessary recordkeeping burdens on brokers.

The Agency proposes adding the date of payment from both the shipper to the broker and from the broker to the carrier. Some brokers commented that they bear significant risk because they tender payment to motor carriers prior to receiving payment from shippers, for instance, in a situation where the carrier is paid within 3 days of delivering a load, but the shipper has 30 days to pay the broker. On the other hand, motor carriers have commented about not being paid by brokers in a timely manner, often in the context of a charge back or other contractual dispute over whether the carrier performed their duties adequately under the contract. Including the date of payment would provide transparency to all parties about the benefits and risks of the carrier's payment structure. It would also provide motor carriers with necessary information in the event they experience charge backs or other instances of nonpayment, because the carrier would be better able to understand any deductions the shipper may have made to the payment it remitted to the broker and to verify that those deductions correspond to the charge back against the carrier.

The Agency proposes eliminating the distinction between brokerage services and non-brokerage services in § 371.3(a) by removing current paragraph (5) and revising paragraph (4). This distinction was originally made by the ICC in its 1949 rule, which was based on the “Practices of Property Brokers” report. As explained in the report, the ICC was contemplating a cap on brokers' commissions. The ICC distinguished between brokerage and non-brokerage services to support implementation of the cap and to prevent brokers from circumventing it through charges for non-brokerage services. The contemplated cap was deferred from the 1949 rule and ultimately never adopted. Despite this, the distinction between brokerage and non-brokerage services was included as part of the rule and has remained in the regulations ever since.

The Agency believes that the distinction between brokerage and non-brokerage services is unnecessary for the purposes of the broker transparency regulation and proposes removing the distinction in favor of a simpler itemization requirement described below. The term non-brokerage service is defined at § 371.2(d), and used only in § 371.3(a)(5), so the Agency also proposes removing the definition of non-brokerage service, which would no longer be used.

The Agency proposes clarifying that the records must itemize all charges and fees associated with the brokerage service, to include an amount and description of each charge and fee. Brokers would also be required to itemize any penalties assessed in connection with the shipment, for example, a penalty for late delivery or cargo damage. This revision is intended to ensure the parties have visibility into the payments, fees, and charges associated with the transaction, and can resolve issues and disputes without resorting to costlier remedies.

In their petitions, both OOIDA and SBTC sought an explicit ban on waivers of the requirements in 371.3(c). However, as a general principle, parties are permitted to waive any right unless Congress, by statute, specifically makes a right non-waivable. The Agency has not identified any statutory provision in which Congress expressly barred waivers in this context, and therefore the Agency has not included the requested language in the revised regulation. The petitions did, however, identify inconsistencies between this regulation and the rest of part 371, which the Agency intends to address through this rulemaking. To this end, the Agency proposes amending the language of § 371.3(c) to more accurately describe the regulatory obligation imposed on brokers and the process for requesting and supplying transaction records.

When the ICC issued the broker transparency regulation in 1980, it stated that it would enable the elimination of other, more complex regulations. One of the major provisions eliminated, former 49 CFR 1045.10, related to the duties and obligations of a broker, which included giving fair advice to shippers and not misrepresenting or making false promises about the services motor carriers would provide; not misrepresenting or giving false information to motor carriers about the commodities in the shipment; advising both the shipper and carrier of the amount and basis of any compensation being received from the other; exercising due diligence in carrying out the terms of its contracts with shippers and motor carriers and ensuring prompt payment; and paying any freight charges in full to the carrier or carriers without deduction for any amount due to the broker from such carrier or carriers. The ICC was clear that its intention was not to eliminate these duties and responsibilities entirely, but rather that providing shippers and carriers with the ability to review the transaction records would ensure that brokers were acting honestly and fairly.

By phrasing the requirement as a private “right to review,” the original regulation did not prohibit a broker from requiring a waiver of the private “right to review” as a condition of brokering a load to a motor carrier and did not contain an enforcement mechanism for the Agency to enforce the private “right to review.” However, FMCSA believes the original wording did not adequately capture the ICC's intent that brokers continue to comply with those duties and obligations, particularly disclosure of such records to shippers and motor carriers who find value in such information. To address these concerns, FMCSA has reframed the disclosure requirement as a regulatory obligation, as the Agency believes this more closely aligns with the original intent of the regulation. Moreover, a regulated entity must adhere to the regulations and cannot “disguise its regulatory obligations as contractual ones.” Taylor Energy Co. LLC v. United States, 975 F.3d 1303, 1306 (Fed. Cir. 2020). These changes would also ensure that the language in § 371.3(c) is consistent with the other broker requirements in part 371.

The proposed amendments to § 371.3(c) would clarify that brokers maintain a continuing duty to act fairly and honestly, and that visibility into the transaction records is the mechanism by which shippers and carriers can ensure that brokers are complying with this duty. The requirement to provide the records upon request would thus be made explicit as a regulatory obligation. The proposed rule would not, however, prohibit brokers from including confidentiality clauses in their contracts with motor carriers. As long as brokers are complying with the requirement to disclose records upon request, the parties may negotiate and reach agreements regarding non-disclosure of the information to non-parties.

As discussed in the comments, the Agency is aware of brokers avoiding meaningful compliance with the regulation by delaying the availability of records for review, and by restricting access for review to their principal place of business. The Agency proposes amending § 371.3(c) to require that records must be provided within 48 hours. This amendment is intended to provide the requestor with the records in a timely fashion, which enables the use of the records to resolve any issues around service or payment. By requiring the broker to “provide” records electronically, this amendment is intended to prevent a broker from only making its records available for review at its principal place of business or another, potentially inconvenient, location. Instead, the amendment plainly places the responsibility of delivering the information to the requestor on the broker.

In the notice requesting public comment on OOIDA's and SBTC's rulemaking petitions (85 FR 51145, Aug. 19, 2020), the Agency posed a series of questions regarding the rulemaking sought by the petitions. FMCSA received a large number of comments in response to the notice, and in subsequent related actions, many responsive to the questions posed and others raising additional issues for the Agency's consideration. The comments expressed a range of views from motor carriers, brokers, and other interested parties, and the Agency's proposed rulemaking is informed by this input.

The first question the Agency posed in the notice regarding the rulemaking petitions referenced FMCSA's existing authorities related to brokers (49 U.S.C. 13101-14916) and asked what statutory provisions, if any, would be carried out by the regulatory changes requested petitioners requested. Both successful petitioners, OOIDA and SBTC, indicated that FMCSA has existing authority to carry out the proposed changes in the petitions for rulemaking. OOIDA indicated Congress has required the Secretary, and hence FMCSA, to regulate brokers to protect motor carriers, including requiring brokers to have a bond as found in 49 U.S.C. 13904(e) and (f), as detailed in OOIDA's petition. SBTC indicated FMCSA already has existing authority to act on these petitions for rulemaking under U.S.C. 13101 through 14916, and more specifically, 49 U.S.C. 14906, which addresses evasion of regulation by motor carriers and brokers.

Few commenters responded directly to the Agency's questions about authority. Of those who did, most indicated that FMCSA has a mission to promote safe operation of commercial motor vehicles, and any form of market regulation falls outside of this mission. Scopelitis, a national transportation law firm, for example, indicated there is no need for the existing regulations in a highly competitive industry, much less the proposed addition of even more regulatory burden.

FMCSA also asked how a rule restricting the rights of private parties ( e.g., brokers) from including certain terms in their agreements would align with the Agency's statutory authority. Few commenters directly addressed this question. TIA and MODE Transportation, for example, indicated that 49 U.S.C. 14101 provides brokers the option to include a waiver provision. The applicability of 49 U.S.C. 14101 is discussed in Section VI.B.8. The National Association of Small Trucking Companies did not cite a specific statute but indicated that dictating the terms of contracts between private parties was beyond FMCSA's authority. In contrast, OOIDA and SBTC commented that FMCSA has the authority to restrict private parties from including a waiver under FMCSA's existing authority. Overall, there was substantial disagreement on this question.

FMCSA response: As discussed in Section IV. Legal Basis, the Agency has the authority to establish certain regulations for property brokers. The Agency believes that the proposed rule, which revises the recordkeeping regulations for property brokers, falls squarely within this authority. Comments that characterize broker transparency as beyond the Agency's authority and unrelated to safety oversimplify both the Agency's authority and the purpose of broker transparency. FMCSA and its predecessor agencies have long been responsible for regulating certain commercial aspects of motor carrier transportation, including broker recordkeeping.

Question two asked how a rulemaking expanding FMCSA's enforcement of a requirement that brokers automatically disclose financial details about each transaction to the motor carrier transporting the load, as requested in the OOIDA and SBTC petitions, would align with the statutes identified above ( i.e., 49 U.S.C. 13301 and 14122).

In its comments on the petitions, CR England Logistics stated that the rulemakings proposed by OOIDA and SBTC do not align with existing FMCSA statutes. TIA indicated that disclosure of financial details is in direct conflict with 49 U.S.C. 14101(b), in addition to Congressional intent. A small number of commenters, such as TIA, stated disclosure of commission, a violation of § 371.3, has not been an issue. TIA further stated there have been no complaints made to DOT's National Consumer Complaint Database (NCCDB) for a violation of a broker not disclosing its commission under § 371.3(c). OOIDA stated FMCSA would not experience additional burdens by adopting the changes proposed in the petitions and already has existing authority to do so under 49 U.S.C. 13904 and 14122.

FMCSA response: The Agency believes that the proposed rulemaking is an appropriate exercise of its authority that builds on the current recordkeeping requirements. Since the filing of these petitions, broker transparency has become a topic of intense interest in the transportation industry. According to Agency records, at least 32 complaints were received from 2018 through 2020. The Agency receives complaints through NCCDB and other sources. As detailed above, FMCSA believes the language of the original regulation does not accurately describe the transacting parties' rights and burdens, and that a broker's obligation to provide records is not premised on any inherent right of the carrier or shipper to receive those records, but rather on the Agency's statutory authority to protect motor carriers in connection with its broker recordkeeping regulations.

FMCSA has several options for enforcing these regulations. In order to register with FMCSA, brokers must agree to comply with all applicable regulations (49 U.S.C. 13904(a)(2)), and FMCSA has the authority to suspend or revoke a broker's operating authority for willful failure to comply with a condition of registration (49 U.S.C. 13905(d)(2)(A)(iii)). FMCSA may also decline to renew a broker's registration if the broker has demonstrated it is not willing or able to comply with the regulations.

The Agency has a further option to seek a civil penalty for regulatory violations. The penalty schedule in 49 CFR part 386 Appendix B already sets out penalties for violations of FMCSA's commercial regulations in paragraph (g), as well as penalties for evasion in paragraph (i). The existing penalties cover violations of this proposed rule, so FMCSA does not propose a new enforcement mechanism or alter the current penalty schedule as part of this rulemaking. FMCSA is aware that the Department of Justice (DOJ) must bring certain enforcement actions for civil penalties on behalf of FMCSA. 7 However, parties may still file complaints with FMCSA for the Agency to investigate, take enforcement action within its existing authorities, and refer to DOJ as appropriate.

The Agency's exercise of authority to regulate broker recordkeeping, including its issuance of broker transparency regulations, is not in conflict with 49 U.S.C. 14101(b). That statute permits shippers and carriers to waive certain rights and remedies by contract, but for reasons discussed in section VI.B.8. of this NPRM, the Agency believes brokers are not shippers within the meaning set out by 49 U.S.C. 14101(b). Because the statute does not relate to brokers, it does not conflict with the Agency's broker transparency regulations. Congress has also expressed its clear intent in 49 U.S.C. 13904(e) for the Agency to issue regulations applicable to brokers that provide protection for shippers and motor carriers, consistent with the Agency's responsibility to carry out the objectives of the national transportation policy and its general authority to regulate brokers of property.

The third question in the notice was whether the transparency issues raised by OOIDA and SBTC are limited to small brokers or large brokers ( e.g., brokers with revenues above a certain threshold, brokers with a certain number of transactions, etc.) or whether they are more widespread such that the rulemaking should cover all brokers, regardless of size. The fourth question assumed that transparency issues were primarily associated with large brokers and asked what revenue threshold FMCSA should consider for the applicability of any new requirements. It also asked how the Agency could obtain accurate information about brokers' revenues.

Of the commenters that responded directly to the third question, the majority indicated that the proposed rule should apply equally to large and small brokers. These commenters included brokers and trade associations, such as England Logistics and OOIDA, and a large number of individuals involved in the trucking industry.

A smaller number of commenters responding to question four indicated that freight brokers, particularly large brokers, due to their size and resources, are taking advantage of the current situation. However, most commenters did not differentiate based on the size of the broker but rather stated that brokers as a whole were not transparent and were not treating motor carriers fairly.

FMCSA response: The Agency believes that the proposed broker transparency requirements should apply to all brokers, regardless of size, as is the case with the current regulation. The Agency believes that a lack of broker transparency causes problems whether the broker who arranged the transportation is large or small.

The fifth question posed related to the most efficient and effective means for brokers to provide information, automatically and electronically, to motor carriers. The Agency asked whether each broker should have, for example, a stand-alone system with motor carriers receiving an email from the broker after the contractual service has been completed, or whether the brokers should be allowed to satisfy the request with partnerships or networks through which registered brokers would upload transaction information which would then be automatically transmitted via the network to the registered carrier associated with the transaction. The sixth question, related to the fifth, was a request for cost estimates for implementing an information technology (IT) solution to accomplish OOIDA's request, either through stand-alone systems run by individual brokers, or systems operated by groups of brokers notifying the individual motor carriers utilizing any of the brokers within the group.

The majority of the commenters agreed that electronic transmission is the most efficient means for brokers to provide information. However, one commenter, MODE Transportation, indicated that implementing an electronic or IT solution is not required to solve the transparency issue and was never envisioned when § 371.3 was developed. Echo Global Logistics stated that much of the information sought through broker transparency is already publicly available, including rate information from aggregators like DAT.com and required financial reports from publicly-held brokers. Echo Global Logistics argued that, given the public availability of this information, the cost of developing and maintaining an electronic reporting system to comply with the petitioners' proposed regulations is not justifiable.

There was disagreement among commenters as to whether a proposed electronic system should be stand alone or a current electronic format(s) which the broker may already be using. Some commenters mentioned use of existing electronic formats, such as email, spreadsheets, faxes, which are in common use to meet a proposed electronic requirement. However, most brokers that commented indicated that dedicated stand-alone systems such as an electronic data interchange (EDI) or application programming interface (API) are just as likely to be already in use by many freight brokers, and these systems provide the necessary data privacy and security. England Logistics mentioned that the data transmitted could potentially be trade secrets and therefore would require more intensive IT systems to protect.

In terms of cost, most commenters indicated that, if the use of a standalone system such as EDI or API were required, it would have a cost impact on those brokers which do not have such systems in place already. Both Axle and Lange Logistics indicated this cost impact may affect small businesses more profoundly than others.

Five commenters directly responded to question six and provided a cost estimate for brokers to establish an electronic system to transmit records. Trinity Logistics and Tucker Worldwide estimated a cost of $2,500 to $10,000 per carrier setup. TIA further provided an estimated cost example of a broker that utilizes 5,000 motor carriers in their database, using their own existing IT system (presumably EDI- or API-based), would incur a cost of $12.5 million to $50 million for implementation. ArcBest indicated personnel and equipment required to implement the electronic information transfer would be $500,000 per broker.

FMCSA response: FMCSA is not proposing to prescribe a specific type of electronic system brokers must use, provided the system complies with 49 CFR 390.32, “Electronic documents and signatures.” The Agency finds that the requirements listed there are appropriate in the context of the broker recordkeeping requirements and sees a benefit in having a consistent standard for electronic documents. FMCSA's experience in reviewing brokers' records shows that most records covered by § 371.3(a), including bills of lading, are already kept in electronic format, though paper bills of lading may still be occasionally used. Thus, the burden on parties to keep and transmit transaction records electronically is expected to be minimal.

The proposed rule does not include an automatic disclosure provision. FMCSA believes that the cost estimates provided in response to question 6, which were related to developing an IT solution for automatic disclosure within 48 hours of the completion of contractual obligations, are overestimated. Since the rule does not include an automatic disclosure provision and records would only be provided upon request within 48 hours, the Agency expects that the costs would be significantly lower because brokers' existing systems, either as currently implemented or with minor modification, could be used to fulfill these requirements. However, the Agency lacks specific data to quantify these costs and is seeking public comments on the cost estimates for this proposal.

In response to the comment that much of the information brokers would have to provide is already publicly available, FMCSA notes that information found on publicly held brokers' financial reports is not transaction specific. While reviewing this information could give shippers and motor carriers a general sense of the state of the freight brokerage industry, it does not provide them with information about the loads they have consigned or hauled. Rate aggregation websites provide pricing information that carriers may find useful in deciding whether to accept an offer to haul a prospective load, but it is also not a substitute for broker transparency information. In particular, it would not provide shipper, carrier, or bill of lading information for a particular shipment, nor would it provide carriers with any information about chargebacks or other fees assessed against them in connection with a particular delivery. FMCSA therefore does not believe relying on publicly-available information is an adequate substitute for the information disclosure proposed in this rule.

Both rulemaking petitions linked broker transparency to concerns over carrier revenue and broker margins, and the notice requesting public comment sought input on these concerns. Margins, as discussed in this proposed rulemaking, refer to the division of a shipper's payment between the broker and the motor carrier, expressed as a percentage. SBTC stated that, in the context of the economic impact of the COVID-19 national emergency, freight rates had dropped drastically, yet brokers, in at least a few instances, were making large margins on freight. SBTC stated that it did not seek regulations limiting the amounts or percentages brokers earn, but it viewed broker transparency as essential to making sure market forces operate ethically and fairly. The OOIDA petition raised similar concerns. The notice asked for quantitative estimates of the economic benefits that would likely be achieved by motor carriers if FMCSA adopted the rules requested by OOIDA and SBTC, including how much additional revenue motor carriers might receive on a per-transaction basis. The notice also sought quantitative estimates of the economic costs to brokers or others, including how much profit reduction on a per-transaction basis brokers would experience and what percentage of the costs would be passed through to shippers or motor carriers.

Only a few commenters responded to these questions. OOIDA estimated that the additional revenue a carrier would earn in an individual transaction would be between tens to thousands of dollars, depending on the specifics of the transaction. This estimate was preceded by a discussion of increased convenience and a decrease in unfair billing practices, and it is unclear how OOIDA's estimated additional revenue was apportioned among the increase in convenience, the decrease in unfair billing practices, greater negotiating power for motor carriers, or other factors. Few of the comments from small motor carriers contained responsive estimates, and several motor carriers noted that the current lack of broker transparency meant that they do not have access to the transaction information necessary to provide an informed estimate. Brokers commented that motor carriers would not receive any economic benefit from the proposed transparency rulemaking. Brokers provided estimates of the cost to comply with OOIDA's proposal based on information technology and staffing costs but did not provide an estimate of the economic impact due to changes to freight rates, profit reduction on a per-transaction basis for brokers, or percentage of costs that would be passed through to shippers or motor carriers.

Although the Agency received few quantitative estimates of the economic benefits of broker transparency to motor carriers and the economic costs to brokers, many comments addressed carrier revenue and broker margins. Motor carriers commented on the prevailing low freight rates at the time and provided examples of offers of one dollar or less per mile. Motor carriers described the impact of these low rates. For example, some comments stated that the offered rates make it difficult to cover motor carriers' operating expenses, including maintaining equipment in safe working condition. Some comments also described low rates as a contributor to undue stress on drivers and unsafe operating practices. Many comments from motor carriers characterized the rates as inequitable given the difficulty of the work they do and value of the service they provide. Many of these comments identified brokers as responsible, at least in part, for low rates and many characterized the brokers' business practices as deceitful. Carriers also say they cannot operate a profitable business unless they haul brokered loads, and some have reported taking brokered loads at a loss, citing the need for revenue to service business debts. In addition, many motor carriers expressed concern that they lack negotiating power to exclude transparency waiver provisions from contracts and, if they exercise their right to view the transaction records, brokers will select other motor carriers to work with and refuse to do business with them in the future.

Many comments from motor carriers support the broker transparency proposals in the petitions as a remedy for the issues they raised. Some comments state that increased broker transparency would allow motor carriers to negotiate higher rates. Many comments simply supported broker transparency as a means for increasing carrier revenue, without describing how revenue would increase as a result of transparency. Other comments suggested modifying the rules requested by OOIDA and SBTC to address their concerns about low rates more directly, including several suggestions to provide the broker transparency information when the parties are negotiating a rate, before the service is provided. Some of these comments stated that the transparency information would not be useful to the carrier after the transportation service had been provided.

Some motor carriers did not support broker transparency and stated that the information is irrelevant to motor carriers because the only pricing information they need is the offered rate. Other commenters proposed a rule limiting broker margins to a certain percentage of the price paid by the shipper.

Many of the comments from brokers challenged the assertions made in the petitions and other comments regarding freight rates and broker margins. Broker commenters also argued that low freight rates are not a result of high broker margins but rather a result of broad market forces, particularly the short-term acute economic impact of the COVID-19 national emergency. They disputed claims about price gouging by identifying a variety of factors that influence the price a broker sets for a load. Brokers also explained that their contracts with shippers are typically for a set period, often one year, while their contracts with motor carriers are typically shorter, often on a load-by-load basis. As a result, the broker's margin for a load covered by the shipper contract will fluctuate based on the spot market, so that the broker may have a higher margin on some loads and a lower, sometimes negative, margin on other loads. Brokers also explained that their margins should not be equated with profitability and described the various expenses incurred to provide brokerage services to shippers. These expenses would not be reflected in the broker transparency information.

Many of the comments from brokers stated that the rulemaking the petitions sought would not have the claimed effect of increasing carrier revenue. These comments stated that broker transparency would not increase freight rates. They also stated that load boards and other commonly available services already provide motor carriers with enough information regarding freight availability, traffic lanes, market rate information, seasonality adjustments, and so on to make informed business decisions, rendering the records available under § 371.3 unnecessary. Some comments added that motor carriers can decline to take a load if the offered rate is too low to be profitable. In response, some comments explained that motor carriers with leased trucks may accept unprofitable loads to secure revenue, even as that revenue is not profitable.

Since the comment period closed, FMCSA has received further input regarding broker transparency. This input includes further expressions of concern regarding low prevailing freight rates, and of the belief that the low freight rates are caused, at least in part, by high broker margins. There is continued interest from motor carriers in broker transparency as a solution to low prevailing rates.

FMCSA response: The purpose of the proposed rule is not to provide an economic benefit to motor carriers, nor to impact broker margins. However, the Agency considers the economic impacts of the proposed rule as part of its mandated regulatory analysis. The comments received to date do not conclusively establish what the economic impact of the proposed rule would be. As with the current rule, the proposed rule would give shippers and carriers the option to access information about a brokered freight transaction after the parties have negotiated the terms of the contract and the transaction is complete but would not require disclosure prior to that time, nor would it require automatic disclosure. The information provided would allow the carrier to compare the amount that the shipper paid the broker to the amount that the broker paid the carrier but would not set or limit rates or brokers' margins. By clarifying the regulatory obligation for brokers to provide the transaction records, the proposed rule would make the information enumerated at § 371.3(a) available to all parties participating in a brokered freight transaction.

Although the Agency cannot determine, with the currently available information, what economic impact the proposed rule would have, two main theories can be derived from the comments. Under one theory, broker transparency would not provide an economic benefit to motor carriers even if such transparency was widespread. Motor carriers would not have access to the transparency information when determining whether to accept a brokered load at the broker's offered price or when negotiating the price of a load with a broker. The information, provided after the fact, would not change the price of the load. The information may not have an impact on the price of future loads for a variety of reasons. The carrier may not find the information from past transactions useful when negotiating prices for future loads offered by the same broker or loads offered by other brokers. If, based on the transparency information, the carrier chose not to accept future loads from that broker, the carrier might not be able to find higher-paying loads from other brokers. Relatedly, the broker in that scenario may be able to find other motor carriers willing to accept the load, even if one carrier refuses to work with them.

Under the second theory, broker transparency would provide an economic benefit to motor carriers if such transparency was more widely available. The broker transparency information might impact the price of future loads that the carrier accepts. Motor carriers may be able to negotiate a higher price if they can apply their knowledge from previous loads to negotiations for future loads from the same broker or future loads with similar characteristics. Brokers may have to accept the higher price if they cannot find other motor carriers. Although the transparency information would not be publicly available, a broker might develop a reputation among motor carriers for offering low rates relative to the price paid by the shipper. If that reputation deterred motor carriers from taking loads, the broker may have to offer higher rates to place their loads. At least one broker highlighted concerns that transparency information could result in motor carriers directly soliciting shippers, bypassing brokers for future loads. The ICC considered this issue when it adopted the current regulations in 1980, emphasizing that motor carriers and shippers are free to deal directly with each other and “[o]nly where the shipper finds that it can get better service from the broker will it stay with the broker” (45 FR 68941, Oct. 17, 1980).

There exists a possibility that transparency information could reduce the exclusive knowledge that brokers bring to a transaction if shippers and motor carriers collect transparency information over time. If the Agency were to assume that the broker's exclusive knowledge is considered value-added and therefore currently captured in broker margins, then increased transparency with this proposal could result in downward pricing pressure on broker margins from motor carriers, shippers, or both.

As discussed in section VI.B.4, above, FMCSA does not view the information available on load boards or through other publicly available sources to be an adequate substitute for the transaction-specific information set out in this proposed rule. Shippers and motor carriers have an interest in knowing details about their particular shipments, especially when problems with a shipment arise or the compensation received differs from the contractual amount. Broker transparency provides the retrospective transaction-specific detail on completed loads necessary to resolve these issues. By contrast, the prevailing rate information available on load boards for prospective loads is useful for making informed decisions about which offers to accept but is not useful in addressing issues with completed loads.

From the comments received, the Agency cannot determine whether either of these theories would prove correct under the proposed rule. The actual impact may be somewhere in between these theories, or both theories may be incorrect. If broker transparency remained rare under the proposed rule, there may not be any economic impact. The Agency seeks further comment to better estimate the economic impact of the proposed rule.

The broker transparency comments brought up several issues not raised in the petitions or in the notice. One issue was the transparency of charge backs. Several comments described questionable claims in situations where a carrier delivered a load, got a clean bill of lading from the receiver, and then later had a claim, or “charge back,” on the load from the broker despite the clean bill of lading. Motor carriers contend that these claims often lack sufficient explanation or description of the reason for the charge back, and the motor carriers find it difficult to contest them, particularly when their payment for transporting the load is withheld unless they accede to the claim. In situations where the contracts include cross-collateralization provisions, payment for other loads transported by the same carrier for the same broker may also be withheld unless the claim is accepted.

Other comments described issues with detention charges and fuel surcharges, where the rates and conditions of the fees that brokers charge shippers are different than the rates and conditions of payments remitted to the carrier, despite the fees being premised on the carrier's operating costs. As an example, fees for detention time are premised on the operating costs of keeping a truck idle while waiting to load or unload, costs that include the driver's time. One commenter described a situation where the broker charged the shipper for detention time after the first hour, at a rate of $50 per hour, but paid the carrier for detention only after 4 hours, and at a rate of $35 per hour. Comments from motor carriers expressed similar concerns regarding fuel surcharges.

FMCSA response: The practices identified in the comments are concerning because, depending on their prevalence, they may significantly disrupt the efficiencies and opportunities offered by brokered freight transactions. Broker transparency seems to be a useful tool in addressing these concerns, by providing parties to a brokered transaction visibility into the associated payments, fees, and charges, enabling the parties to resolve issues and disputes among themselves without resorting to costlier remedies. If a claim is made against a shipment, the carrier should be able to understand the basis of the claim, not just to dispute questionable claims, and in instances of well-founded claims, to take precautions with future shipments and thereby avoid such claims. On the remittance of surcharges, there may be a reasonable justification for a broker to remit less than the full amount of a surcharge received from a shipper to a carrier, but the carrier should be able to see that difference, particularly when the surcharge is premised on the carrier's operating costs.

In addressing broker transparency, FMCSA cannot replace prudent business judgment and cannot guarantee the trustworthiness of every shipper, broker, and carrier. However, the brokered freight transportation industry requires a certain degree of trust to operate efficiently. Trust is eroded when motor carriers are prevented from seeing the charges and payments associated with the service they are providing. In addition to creating mistrust, unsubstantiated and specious charges levied on motor carriers divert resources to paying or litigating the charges, that could otherwise be spent providing safe and efficient transportation.

Brokers commenting on transparency raised concerns about the confidentiality of their pricing. Brokers stated that shippers require pricing confidentiality in their contracts with brokers, which is one reason why brokers require confidentiality in their agreements with motor carriers. In this regard, several motor carriers noted that the broker-carrier contracts typically have confidentiality clauses, which would serve to protect shipper pricing in the context of greater broker transparency.

Brokers also asserted that their pricing can constitute trade secrets, and broker transparency requirements would conflict with the Defend Trade Secrets Act (DTSA) (18 U.S.C. 1831 et seq. ). Motor carriers commented that DTSA doesn't apply to this situation because motor carriers have a right to the transaction information under the current regulations and, consistent with DTSA, the information can still be protected from public disclosure without waiving the carrier's right to access. Motor carriers argued that a broker disclosing to a carrier the transactional information to which the carrier is authorized to access is not equivalent to theft of a trade secret.

FMCSA response: The Agency recognizes that shippers, motor carriers, and brokers in a brokered freight transaction likely have a compelling business interest in protecting information about that transaction. The broker transparency regulation does not require public disclosure, and the Agency believes that broker transparency is compatible with the prudent protection of business information. Section 371.3 does not require the broker to disclose to the carrier all details of the business relationship between the broker and shipper, but rather only the transaction-specific details enumerated in § 371.3(a). The Agency believes that the confidentiality provisions in broker-carrier contracts can provide protection consistent with broker transparency. The concerns around confidentiality must be balanced against the issues that broker transparency is meant to remedy, as described above.

Regarding trade secrets, the Agency does not believe that § 371.3 in its current form, or with the amendments proposed, conflicts with trade secret protections. The DTSA prohibits economic espionage and theft of trade secrets, defined as when a person steals, receives, buys, possesses, duplicates, transmits, or engages in other similar activities regarding proprietary economic information, or conspires with others to do so. Here, the information is required to be kept and handled in accordance with a Federal regulation. Therefore, a broker or carrier is legally in possession of such information and does not violate the DTSA when it handles such information pursuant to the regulation. Parties are also permitted to include confidentiality clauses in their contracts that limit further disclosure of such information.

Moreover, while a pricing formula could be a trade secret as a type of business information with independent economic value, the record of an individual transaction covered by § 371.3(a), without more, is not likely to be covered as a trade secret. Brokers are not required to disclose additional information or documentation beyond the scope of what is covered in § 371.3(a). Further, § 371.3(c) does not require the type of public disclosure that would be economically damaging to a party. Instead, it only requires that brokers give the parties to a transaction access to a limited amount of information pertaining to that transaction.

Several comments argued that any rule preventing the waiver of § 371.3(c) would be contrary to 49 U.S.C. 14101. Those commenters argue that 49 U.S.C. 14101 should be interpreted to cover brokers and therefore permits brokers to include waiver provisions in contracts with motor carriers that waive the broker's obligations to the motor carrier under § 371.3. In support of this claim, several commenters cited the Dixie Midwest   8 ICC decision for the proposition that a broker is a shipper in relation to a carrier.

FMCSA response: The language of 49 U.S.C. 14101 refers to shippers and motor carriers, not brokers. The Agency does not interpret that statute to apply to brokers, and the proposed rule therefore would not conflict with the statute. Motor carriers or shippers would not use 49 U.S.C. 14101 to contract out of their rights under § 371.3(c), because 49 U.S.C. 14101 is premised on a contract between a carrier and a shipper, not a brokered freight transaction, while § 371.3 is focused solely on a brokered freight transaction. It is unreasonable to say that a broker could rely on 49 U.S.C. 14101, which on its face does not apply to brokered freight transactions, in order to waive a right that applies only to brokered freight transactions.

Regarding the Dixie Midwest decision, in that case the ICC was determining whether a broker could be considered a shipper in the context of supporting an application for contract carrier authority. That situation has limited bearing on the interpretation of 49 U.S.C. 14101. Most federal courts that have addressed the issue of whether 49 U.S.C. 14101(b) applies to brokers in more recent years have held it does not. 9

The Agency is aware that some courts have determined, after a fact-specific analysis, that a broker acted as a shipper under the particular conditions present in those transactions. 10 However, the Agency does not consider all brokers to be shippers in relation to motor carriers or for that to be the standard by which broadly applicable regulations are formulated. In circumstances where the broker does, in fact, act as the shipper, 49 U.S.C. 14101(b) limits the circumstances under which the Agency may prohibit waivers in contracts. However, the Agency believes that in most brokered transactions, the broker is not the shipper, and 49 U.S.C. 14101(b) does not apply.

The proposed amendments to § 371.3(c) would also render this objection largely moot by clarifying that access to records is not a right belonging to motor carriers or shippers that can be contracted away, but instead is a regulatory compliance requirement that brokers must meet in order to operate in the interstate transportation industry.

The SBTC rulemaking petition, which was filed in May 2020, referred to the COVID-19 national emergency and its negative impact on freight rates. The OOIDA petition, also filed in May 2020, noted that freight rates had reached historic lows but did not reference the COVID-19 national emergency specifically. SBTC's petition raised concerns that brokers were taking advantage of the situation to obtain high margins, and several comments on the petitions expressed similar concerns. These concerns were not based on systematic data, but on personal experiences, beliefs, and anecdotes about broker margins during that time; however, motor carriers also noted the difficulty in providing supporting data because they rarely obtain information about broker margins. Several motor carriers made the related point that they provided essential transportation services during the COVID-19 national emergency and should be compensated accordingly.

The comments received from brokers disagree with the motor carriers' claims. These comments state that the COVID-19 national emergency did not provide brokers with high margins; instead, brokers claim they experienced the same weak freight market and had difficulty finding loads to broker. Several brokers characterized the rulemaking proposed in the petitions as a reaction to short-term economic forces and opposed the petitions because they believed that such a reaction was inappropriate. These brokers noted that freight rates were already rebounding at the time they filed their comments, which was later in 2020. Some commenters referenced freight market indices to support this point.

Returning to the carrier point of view, the OOIDA petition did not directly tie its proposed rulemaking to COVID-19 and stated that “OOIDA has long pushed for greater transparency in transactions with brokers.” In 2021, at a time when the freight market was stronger than when the petitions were filed, SBTC submitted a letter to DOT expressing continued interest in a broker transparency rulemaking. As described previously, FMCSA held a listening session at MATS in March 2023 on the topic of property brokers. During this session the Agency heard from several motor carriers expressing their support for a broker transparency rulemaking.

FMCSA response: The COVID-19 national emergency had a drastic negative impact on the freight market in 2020, but the market began to recover later that year. Subsequently the market has continued to fluctuate, reaching notable highs in 2021 and 2022 but dropping off significantly in the last few years. Though the Agency is aware of economic conditions in the industry, the proposed rulemaking is not intended to address those conditions. The circumstances of the COVID-19 national emergency may have increased the interest in broker transparency regulation, but the Agency believes the proposed rulemaking serves a purpose beyond the context of that emergency, a conclusion supported by the continued engagement of motor carriers on the issue of broker transparency.

The OOIDA petition sought a provision making disclosure of the records automatic. OOIDA stated the automatic disclosure was necessary to prevent selective retaliation, i.e., blacklisting, against motor carriers who exercise their option to review the transaction records. The SBTC petition did not seek an automatic disclosure provision. Many commenters expressed the same concern with retaliation as OOIDA.

FMCSA Response: The proposed rule does not include an automatic disclosure provision. Instead, as in the current regulation, parties to the transaction would have the ability to review the records upon request. The Agency believes that an automatic disclosure provision is unnecessary at this time and could be excessively burdensome to brokers. Though the concerns regarding retaliation appear plausible, the Agency cannot determine how frequently retaliation would take place or its potential effect on the motor carrier transportation industry. The Agency seeks further comment on this issue.

While the Agency invites comment on all aspects of the NPRM, we are particularly interested in comments that address the following issues. In addressing topics, FMCSA requests that commenters number their remarks to correspond with the list below:

1. What impact, if any, would the proposed rule have on freight rates? Please provide support for your position.

2. How common is electronic recordkeeping among household goods brokers? What burden, if any, would be imposed if electronic recordkeeping was required?

3. How much time would a broker spend creating an electronic record from paper documents for the record mandated by § 371.3? What would be the costs for a broker to create an electronic record per transaction?

4. Do you believe that the 48-hour timeframe proposed for § 371.3(c) would create a substantial burden for brokers? Why or why not? If you disagree with the proposed 48-hour timeframe, what timeframe would best balance the objectives of transparency while minimizing the burden on brokers?

5. If this proposal effectively reduced instances of illegal brokering, through carrier policing with transparency information, would the brokers engaged in illegal practices exit the market, resulting in the transfer of illicit profits to legally operating motor carriers and/or brokers?

6. Should freight brokers and household goods brokers be subject to the same recordkeeping requirements under § 371.3? If your answer is “no,” why should they be subject to different requirements?

7. Should parties requesting records under § 371.3(c) be required to submit their request in writing? Should parties requesting records under § 371.3(c) be required to submit their request electronically? Would requiring a specific format for submitted requests impose a cost on the parties or otherwise deter requests for transparency? Please provide support for your position.

8. Would the proposal that records be provided electronically under § 371.3(c) make broker transparency more likely, as compared to not specifying a method of provided the records? Should the Agency be more specific in requiring a particular format for records provided under § 371.3(c), and if so, what method and/or format is preferrable? Please provide support for your position.

Part 371, entitled, “Brokers of Property,” provides requirements for entities or individuals brokering the transportation of property by authorized motor carriers. FMCSA proposes to amend §§ 371.2, “Definitions,” and 371.3, “Records to be kept by brokers.”

Section 371.2 defines terms used in part 371 and includes a definition for “non-brokerage service,” which is used only in § 371.3. FMCSA's proposed amendments to § 371.3 would remove the term “non-brokerage service” from the section, and FMCSA therefore proposes a corresponding amendment to § 371.2 to remove the definition, which would no longer be used.

In § 371.3 the Agency proposes modernizing the language of the regulation by replacing the word “shall” with the word “must.” These words have the same meaning in the FMCSRs, as explained in § 390.7(b). Further, the addition of the electronic format in accordance with § 390.32(d) has been proposed to align with FMCSA's electronic records requirements elsewhere in the FMCSRs and to make records readily available to all parties. Paragraph (a)(4) would be revised to include the amount of compensation received by the broker for each service performed in connection with each shipment, including, but not limited to, freight charges, surcharges, and accessorial fees; the date of payment; and the name of the payer, including any business aliases, if known. Paragraph (a)(5) would be revised to require broker records to include any penalties assessed in connection with each shipment and to delete reference to “non-brokerage service.” Paragraph (a)(6) would be removed, as FMCSA proposes incorporating its language into paragraph (a)(4). FMCSA proposes revising paragraph (b) to replace “three” with “3,” to align with the U.S. Government Publishing Office guidelines on numeral styling, and to add “must” to confirm that records are required to be kept for 3 years. Finally, FMCSA would revise paragraph (c) to include the requirement that brokers must provide records electronically within 48 hours of request to any party to the brokered transaction.

The Office of Information and Regulatory Affairs (OIRA) determined that this proposed rule is not a significant regulatory action under section 3(f) of E.O. 12866 (58 FR 51735, Oct. 4, 1993), Regulatory Planning and Review, as supplemented by E.O. 13563 (76 FR 3821, Jan. 21, 2011), Improving Regulation and Regulatory Review, and amended by E.O. 14094 (88 FR 21879, Apr. 11, 2023), Modernizing Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. This rule is also not significant within the meaning of DOT Order 2100.6A, “Rulemaking and Guidance Procedures” (June 7, 2021). Accordingly, OMB has not reviewed it under these Orders.

This proposal would amend the requirements of § 371.3 to further improve transparency in brokered freight transactions between brokers, motor carriers, and shippers. The Agency seeks to increase transparency and reduce information asymmetry so that the freight brokerage market operates in a more ethical, fair, and efficient manner. Information asymmetry is a term describing a situation where one or more parties to a transaction have additional material information on a transaction not available to another party. Information asymmetry may give brokers a strategic advantage in contract negotiations, potentially enabling them to secure more favorable contractual terms. Information asymmetry is generally undesirable, and the Agency believes it creates inefficient outcomes in brokered freight transactions. Based on comments to the OOIDA and SBTC petition for rulemakings, the Agency understands that information asymmetry hinders motor carriers in their negotiations with brokers. Furthermore, motor carriers may not be able effectively to defend themselves against potential abuses, such as unfounded claims. The OOIDA petition argued that the prevalence of waiver clauses and instances of retaliation by brokers against motor carriers seeking to exercise their rights under § 371.3(c) undercut the transparency envisioned by § 371.3. The SBTC petition similarly highlighted the issue of waiver clauses and reported instances of “profiteering, price gouging and low-balling tactics.”

As described above, the purpose of this NPRM is to reduce information asymmetry among parties to brokered freight transactions, i.e., brokers, shippers, and motor carriers. The NPRM proposes to do so by improving transparency. To accomplish these goals, the Agency proposes the following substantive amendments to § 371.3:

1. Amend § 371.3(a) to require that brokers keep the required records in an electronic format;

2. Amend § 371.3(a) to revise the required contents of brokers' records;

3. Amend § 371.3(c) to clarify that brokers must provide records upon request; and

4. Amend § 371.3(c) to require that records must be provided electronically within 48 hours of request.

The following analysis provides a discussion and overview of the impacts likely to result from the proposed changes. The analysis discusses the effects of these proposed changes qualitatively due to the limitations of available data, which preclude the Agency from making quantitative estimates.

The Agency provides the following cost analysis for each change in the proposed rulemaking.

The Agency is aware of brokers avoiding meaningful compliance with § 371.3(c) by making the required records available for inspection only at their principal place of business. The Agency believes this behavior may allow brokers to avoid their duty to provide the § 371.3 transaction records to the transacting parties. Brokers are already required to maintain a record of each transaction under § 371.3. The Agency also believes that most, if not all, brokers are currently maintaining records of their transactions in an electronic format, as electronic recordkeeping is a standard practice in many business transactions. Electronic recordkeeping also offers several advantages over paper records:

1. Information can be easily searched and retrieved, eliminating the need to search through physical documents;

2. Electronic records are less susceptible to loss or damage, as data can be backed up to prevent permanent data loss; and

3. Electronic records offer a significant cost advantage over paper records. According to a study by MCC Innovations, creating and maintaining paper records can be up to 141 times more expensive compared to electronic records. 11

Given the advantages of electronic recordkeeping, it is likely that brokers have already transitioned to electronic recordkeeping. Therefore, the Agency concludes that this requirement would not constitute a burden for most brokers. FMCSA recognizes that a small number of brokers may still maintain records solely in paper format. However, the Agency does not know how many brokers do not have records of their transactions in an electronic format, nor the number of transactions those brokers conduct relative to the overall number of broker transactions and is therefore unable to quantify a total cost for this proposal.

The Agency has instead attempted to quantify the cost of creating an electronic copy of a record on a per transaction basis. FMCSA believes that brokers who are not creating electronic versions of their transaction records currently have access to the technology needed to do so ( e.g., document scanners, digital cameras, document management software, etc.). FMCSA anticipates that these tasks can be completed by an office clerk in 5 minutes per transaction as these records are currently stored by transaction and should be easily accessible to the broker. The Agency is reinforced in this belief based on comments submitted in response to the OOIDA and SBTC petition for this rulemaking but requests further comment from the public on this assumption.

The burden hours associated with this task are monetized using an hourly wage for an office clerk adjusted for fringe benefits and broker overhead. The Bureau of Labor Statistics (BLS) median wage for an office clerk is $19.46 (SOC 43-9061). The hourly wage is increased by fringe benefits and broker overhead, which results in a $32.93 wage ($32.93 = $19.46 + ($19.46 × 48.2%) + ($19.46 × 21%)). The fringe benefits rate used was 48.2 percent  12 and relies on data published by BLS. Overhead costs are business expenses that are not directly tied to the production of goods or services. These may include rent for office space, payroll administration costs, and employee training costs. FMCSA relies on publicly available Service Annual Survey (SAS) data from the Census Bureau in the truck transportation industry (subsector 484) and transit and ground passenger transportation industry (subsector 485) to estimate a composite overhead rate. 13 After reviewing SAS data from 2013 through 2021, FMCSA found 2015 to be the most appropriate baseline from which to estimate industry overhead rates because it is the most complete year of pre-COVID data. FMCSA first summed the seven overhead expense categories most focused on firm fixed price expenses for both subsectors 485 and 484 including (1) expensed purchases of software, (2) data processing and other purchased computer services, (3) purchased repairs and maintenance to buildings, structures, and offices, (4) lease and rental payments for land, buildings, structures, store spaces, and offices, (5) purchased advertising and promotional services, (6) purchased professional and technical services, (7) cost of insurance, and then divided the sum of the overhead expense categories by gross annual payroll to calculate an average industry overhead rate of 21 percent (21 percent = $16 billion ÷ $75 billion) for use in this analysis.

FMCSA estimates a $2.75 cost per record to create an electronic copy of a transaction record. As stated above, FMCSA finds it is likely that brokers have already transitioned to electronic recordkeeping, which would mitigate the impact of the potential burden. The Agency has no data that would allow it to quantify the overall size of the additional burden.

The Agency proposes updating the content of records under § 371.3(a) to include the date of payment for brokered services. The Agency believes this proposal would impose a minimal burden as most brokers likely already retain payment dates for brokered services as part of their standard transaction and accounting processes. Under this proposal, brokers would be required to update the contents of records kept under § 371.3 to include dates of payment. While the Agency cannot quantify the cost impact to include payment dates in records kept under § 371.3, due to the limitations of available data, FMCSA expects it would be de minimis due to the minor adjustments that would be required to comply with this proposal, as discussed previously. FMCSA proposes this requirement in response to comments both to the OOIDA and SBTC petitions and to an FMCSA Broker Listening Session at MATS in March 2023, where multiple commenters discussed charge backs and claims after loads were delivered. The Agency believes the inclusion of a date of payment would provide additional information to motor carriers that they may use to counter any inaccurate claims. For example, date of payment information may aid a carrier to establish a timeline of events, such as payments to the broker by the shipper, and possibly aid in rectifying discrepancies and spurious charge backs with brokered freight contracts. The Agency lacks data to quantify the amount of fraudulent or inaccurate charge backs imposed on motor carriers but concludes that there would be some cost savings for motor carriers if they are able more readily to contest these charges with the increased transparency information.

The Agency also proposes to eliminate the distinction between brokerage services and non-brokerage services in § 371.3(a) by removing paragraph (5) and revising paragraph (4). The rationale for the distinction was initially set out in the brokers of property rule promulgated by the ICC in 1949, as detailed earlier in this NPRM in section V.A. History of Property Broker Regulations. In the past, the ICC attempted to regulate broker fees by setting a cap, but this relied on differentiating between brokerage and non-brokerage services. However, the broker fee cap was never adopted. With the current focus on transparency in broker transactions, the distinction between these service types is no longer necessary. The Agency, therefore, proposes to require that the records contain all charges and payments connected to the shipment. This proposed change is consistent with the obligation imposed on federal agencies by the Plain Writing Act of 2010. This law requires that federal agencies use, “clear Government communication that the public can understand and use.”  14 As this proposed amendment does not change the contents of records under § 371.3, the Agency finds that there would be no economic impact associated with the modernization of this language.

FMCSA is proposing to amend the language of § 371.3(c) to state that brokers have an obligation to disclose records within 48 hours of request. The prevalence of waivers may be reduced through the framing of this regulatory obligation. Broker transparency is intended as a mechanism to allow parties to a brokered freight transaction to self-police the performance of the transaction. A free market in the brokered freight industry would represent a scenario where the demand, supply, and prices of brokered transportation of property are determined by the parties to these brokered transactions, i.e., shippers, brokers, and motor carriers. However, free markets require transparency to operate efficiently. When parties to a brokered transaction have unequal access to relevant information, known as information asymmetry, that could lead to an inefficient allocation of resources and therefore a sub-optimal outcome for society. Since waivers of § 371.3 inhibit the sharing of information in brokered freight transactions, these waivers may create some degree of market failure or inefficiency.

A party to a brokered transaction may seek records under § 371.3(c) for various reasons, including, but not limited to the following:

• Motor carriers may seek transaction records in furtherance of a remedy against potential charge back abuses or other erroneous charges on completed loads. For example, if the broker made a concession to the owner of a brokered load and attempted to recapture these funds from the carrier, this could be verified by the carrier through transaction records requested under § 371.3. It is evident from the comments received that some motor carriers believe spurious charge backs can be identified if motor carriers have access to transparency information.

• Shippers may use transaction records to verify that the services that they were billed for by the broker were provided. This can help to prevent fraud or errors in billing.

• Motor carriers and shippers may seek transparency on broker margins. Although a party to a brokered contract would have access to transaction records under § 371.3 only after the contractual service has been completed, carrier and shippers could use this information determine whether the margins are commensurate with the service provided, and potentially to negotiate for better rates or turn to other brokers for future loads. If many motor carriers and shippers were to make a similar decision, some brokers might find it difficult to contract out loads and therefore would face pressure to offer better rates and therefore improved margins for motor carriers.

• Motor carriers and shippers may use transaction information to identify instances where loads have been brokered without authority and to report such instances to FMCSA.

• Motor carriers believe less time would be spent resolving disputes if transaction information is readily available. Several reports submitted to FMCSA indicate that motor carriers have spent considerable time seeking such information or resolving issues stemming from its absence.

FMCSA does not regulate freight rates or broker margins. The proposed rule would reframe the existing regulation that requires the broker to provide a record of the transaction to the motor carrier on request after the transaction is complete, but it would not regulate rates or margins. The Agency believes that this transparency could have some impact on rates and margins, and the current prevalence of waivers suggests that brokers likely derive some benefit from not providing transaction records to motor carriers. However, the Agency also believes that the proposed rule may have only a minimal impact on rates and margins, and other factors may still predominate in the setting of rates and margins. The possibility of a minimal impact is supported by the wide availability of rate information and the fact that carriers would only receive the transparency information after a transaction is completed, i.e., after the rate is negotiated. Due to the limitations of available data, FMCSA cannot judge the likely impact and the Agency seeks further information to determine the degree of impact.

To gain a clearer understanding of the impact of clarifying brokers' obligations to provide records under § 371.3, the Agency examined market conditions in the freight brokerage industry over the past few years. According to data from the U.S. Census Bureau, revenues for freight brokers increased, in aggregate, from 2019 to 2021. 15 While the Census Bureau data shows a decrease in motor carrier revenues from 2019 to 2020, it also shows a rebound in motor carrier's revenue in 2021. Truck driver wages also showed continuous growth during 2019 to 2021. A study conducted by the American Trucking Associations also shows average wage increased for truck drivers by 18% between 2019 and 2021. 16 The COVID-19 emergency also resulted in reduced costs for motor carriers. According to a report published by The Trucker, motor carriers benefitted from reduced costs in fuel and increased fuel economy due to lower traffic levels. Motor carriers' marginal operating costs per mile correspondingly decreased by approximately 5 cents. 17 These cost savings would have helped to offset the reduction in revenues for the industry during the COVID-19 national emergency.

The number of brokers with operating authority grew by 20.90 percent from 2020 to 2021. Similarly, the number of motor carriers with operating authority grew by 18.81 percent from 2020 to 2021. Public industry data shows that rates for brokered freight loads rebounded from their COVID-19 downturn in late 2020 and peaked in 2022. 18 Figure 1 provides a visual display of the relative change in brokered freight rates over time. The Agency finds that the rapid entry of new motor carriers into the market during 2022 was driven by a surge in freight demand beginning in 2021, with new brokers and motor carriers intending to capitalize on unprecedented market conditions. These conditions included government subsidies such as the COVID-19 economic impact payments, the Paycheck Protection Program (PPP), lower marginal costs and relatively high rates for trucking loads as seen in Figure 1.

By 2023, however, as a market correction emerged, brokers and motor carriers began leaving the market. As the initial pandemic response waned, demand began to normalize which led to an oversupply of capacity and subsequent broker and carrier exits. Freight rates also came down from their 2022 peak. Such rapid expansion, as seen in 2021, was unlikely to be sustainable, and a natural correction towards a new equilibrium was anticipated. However, the Agency finds that the average rate for a brokered load and the total number of motor carriers and brokers holding active authority remain at levels higher than their pre-pandemic numbers, indicative of a freight industry more robust than when OOIDA and SBTC submitted their petitions. This, combined with a study published in January 2024, indicating average broker margins of approximately 13.47 percent to 15.4 percent, depending on the configuration of the truck, suggests a period of favorable margins for both brokers and motor carriers. 19

In conclusion, analysis of available data suggests that brokerage margins generally align with the self-reported industry averages of approximately 15 percent. The Agency posits that isolated instances of higher margins are not indicative of broader trends within the industry. Instead, the Agency maintains that pricing trends in the brokerage industry are tied to market factors.

FMCSA understands that several factors influence freight brokerage pricing including, but not limited to:

1. Costs of fulfilling contractual obligations e.g., fuel, labor, depreciation of equipment, licensing, insurance, taxes;

2. Market rate information;

3. Demand by motor carriers for brokered loads;

4. The supply of brokered load contracts on the market;

5. Seasonal demand, i.e., the changes in demand for brokered loads depending on the time of year;

6. Type of commodity; and

7. Existing economic conditions, e.g., COVID-19 national emergency, recession.

The Agency believes that these factors, rather than the availability of additional information concerning broker margins, are likely dominant for pricing brokered loads. Through comments submitted by industry stakeholders, FMCSA understands that broker records would be of limited utility in negotiating contracts due to the effect of the pricing factors listed above, as such records are provided only upon request and after the completion of the contractual obligations. Therefore, the records may only be useful for negotiating pricing for future loads. However, a broker may refuse such negotiations by claiming that all the pricing factors for the load are not the same.

Any shift in pricing in the brokered freight industry would take the form of transfers. A transfer in this context would be a shift in revenue from one party to another, specifically from brokers to motor carriers. FMCSA cannot predict the magnitude or frequency of any transfers between parties to brokered transactions but believes transfers could occur because of this proposed rule.

The Agency is unable to quantitatively estimate the magnitude or frequency of any transfers due to lack of data on:

1. How many transactions under § 371.3 are waived;

2. The number of transactions in the brokered freight industry;

3. The margins of brokers and motor carriers throughout the industry; and

4. The degree to which those margins are impacted by waivers to the current regulation.

The Agency believes transfers may occur based on the following factors:

1. A significant number of motor carriers have said they intend to use transparency information to negotiate for better rates. However, as discussed previously, FMCSA believes the content of records under § 371.3 would be of limited utility in negotiating rates;

2. Brokers who currently use § 371.3 waivers may relinquish some degree of competitive advantage if the proposed rule is effective at reducing the frequency at which these brokers use waivers to the regulation. If brokers currently price the value of this competitive advantage into their brokerage contracts, their ability to maintain current margins could be weakened; and

3. If this proposal were to effectively reduce the prevalence of waivers then carriers may be better able to detect unauthorized brokering by examining transparency data to identify the parties involved in the brokered transaction. Carriers could then report suspected unauthorized brokering to FMCSA for enforcement action. If these measures successfully reduce unauthorized brokering, then those profits could potentially be redirected to motor carriers and brokers with the appropriate authority.

FMCSA also acknowledges that transfers need not be large, as a percentage of total industry revenue, to meet the economically significant threshold of $200 million, under E.O. 14094. The Agency estimates the actual revenues specific to the broker entities subject to this regulation range from $11.6 billion  20 to $65 billion  21 per year. Additional revenue estimates for the entire industry also include $16.58 billion. 22 The Agency has no industry revenue information specific to brokers that would be impacted by this rulemaking. Due to limitations in available data, it is not possible to isolate revenue estimates specifically for brokers subject to this proposed rulemaking. Since these brokers represent a subset of the overall U.S. brokerage industry, their revenue is unlikely to be at the upper end of this range.

The maximum percentage of transfers that could occur in response to this rulemaking without reaching the economically significant threshold of $200 million of impacts in any 1 year ranges from 1.7 percent  23 to 0.3 percent. 24 As discussed, the Agency believes the economic threshold for significance is likely closer to 1.7 percent than to 0.3 percent, as the broker entities subject to this regulation represent a subset of the total number of transportation brokers operating in the United States. The Agency requests comment on the frequency and magnitude of transfers that may occur as a result of this rulemaking and invites all interested parties to submit relevant data and information.

It is important to note that any shift away from the current practice of including waivers of § 371.3(c) may present economic disadvantages to brokers. The Agency acknowledges England Logistics' comment that inappropriate solicitation of freight to owners of brokered loads presents a business risk to them. The Agency recognizes that a broker's role extends beyond matching shippers with motor carriers. Brokers act as an extension of the shipper's team, managing and overseeing cargo transportation with the carrier and handling varying documentation. The Agency does not believe that this proposal would materially alter the value proposition offered by brokers to shippers or make brokers less competitive as compared to working directly with motor carriers. Although the proposed rule clarifies that brokers have a regulatory obligation to disclose records upon request, it does not prevent them from including confidentiality clauses in their contracts with motor carriers or shippers.

The proposed amendments to paragraph (c) would not impose any duty on motor carriers. They clarify that the broker has a duty to provide records to the motor carrier upon request, as intended by the current regulation, but the motor carrier is not obligated to request the records. The Agency does not believe that the proposed amendments will impose a cost on motor carriers.

The current regulation lacks a defined timeframe within which brokers must fulfill information requests. The Agency has received reports of motor carriers experiencing lengthy delays in obtaining required information from brokers. The Agency has heard from at least one carrier claiming that a broker asserted that § 371.3, “does not state how long they have, to comply with that request and we can wait 10 years before we give you those records.”  25 A defined 48-hour compliance period for brokers to respond to transparency requests under § 371.3 would directly address industry stakeholder concerns about excessive delays.

The Agency acknowledges that the requirement for broker records to be provided within 48 hours may present some costs for brokers. Brokers may need to restructure their processes, invest in IT systems, or develop new IT systems altogether to meet this requirement. Through comments to the OOIDA and SBTC petitions, the Agency understands that not every broker may have pertinent transaction records in the same database, filing system, or transport management system.

Under this proposal, brokers would not be required to produce or create new information. However, some brokers may need to increase total available staffing hours or invest in technology upgrades to meet the 48-hour timeframe. The Agency lacks data to estimate these costs.

The Agency believes that most, if not all, brokers are complying with the current regulation to maintain a record of each transaction in accordance with § 371.3. The Agency is unable to quantify the costs to brokers of providing transparency information within 48 hours due to limited available data on:

1. The total number of transactions processed by brokers that would be subject to the proposed regulation in any given time;

2. The anticipated volume of requests for transaction-specific information under § 371.3; and

3. The technological readiness of brokers to fulfill these requests within the proposed 48-hour timeframe.

However, the Agency believes that some of these costs could be minimally offset by cost savings from having to respond to repeated inquiries from motor carriers for the content of records under § 371.3. The Agency acknowledges that currently motor carriers may, in some instances, submit repeated requests for records under § 371.3, extending over long periods, potentially lasting months. A defined 48-hour compliance period for brokers to respond to transparency requests under § 371.3 would directly address delays in receiving transparency information and therefore mitigate the need for repeated inquiries.

The primary purpose of this proposed rule is to modernize FMCSA's existing recordkeeping requirements and transparency provisions for brokers and clarify the obligation imposed on brokers to respond to requests for transaction records and the process parties must follow when requesting and supplying such records. The electronic recordkeeping requirement would offer several advantages over paper records. Information can be easily searched and retrieved, eliminating the need to search through physical documents. Electronic records are also less susceptible to loss or damage, as data can be backed up to prevent permanent data loss. A lack of transparency in freight brokerage contracts has been linked to excessive and inappropriate charge backs by brokers. Motor carriers argue that access to broker information mandated by § 371.3 is essential for them to effectively challenge or even verify the legitimacy of charge backs. Without this information, they claim their ability to defend themselves against potentially inaccurate charges is significantly hampered.

The Agency believes the inclusion of the date of payments with the contents of records would provide additional information a carrier may use to counter any inaccurate claims, or spurious charge backs. The intent of the current regulations in § 371.3 is, in part, to enable self-policing of freight-brokered contracts in the absence of more restrictive regulation. The proposed rule would help improve self-policing of freight-brokered contracts on issues such as charge back abuses and unauthorized brokering.

Some motor carriers allege that broker information would enable them to negotiate for better rates. The Agency has not been able to determine the frequency or magnitude of any possible transfers resulting from this rulemaking but acknowledges that motor carriers and shippers may be able to negotiate better rates over time using such information due to a decrease in the information asymmetry present in the brokerage industry. Any resulting shift in revenues between the entities that would be subject to this rulemaking would take the form of transfers. Transfers are not considered to be economic benefits or costs at the societal level.

The Agency believes that broker information would offer limited utility in securing more favorable rates. This belief is based on a few key considerations. First, the pricing of brokered contracts is primarily driven by prevailing market forces. Factors such as the overall economic climate, supply and demand dynamics within the brokerage industry, and other relevant market conditions, as discussed in Section VIII.A.3. Costs, exert a great influence on brokered contract pricing. Second, the information itself would become available only after the contractual obligations have been fulfilled. Because brokered contracts are highly specific, with variation in terms, length, and conditions, information on past contracts would be only minimally applicable for direct comparison in future contract negotiations. However, the reduction in information asymmetry due to increased transparency should enable a more efficient market by reducing charge back abuses.

The Agency explored alternative approaches, such as a phased implementation, automatic disclosure of the content of records under § 371.3, prohibiting waivers, and a longer timeframe for providing transparency information than the proposed 48 hours. FMCSA decided against these alternative approaches. The Agency finds that a phased implementation would not reduce potential burdens imposed by this proposed rule for the following reasons:

1. Brokers are already obligated to maintain records under § 371.3. Therefore, they possess the information necessary to comply with the proposed 48-hour turnaround for information requests;

2. The Agency believes that most brokers are maintaining a record of their transactions in an electronic format; and

3. Brokers likely capture the date of payment for brokered services as part of their standard transaction and accounting processes.

The OOIDA petition sought a provision making disclosure of the records automatic. OOIDA stated the automatic disclosure was necessary to prevent selective retaliation, i.e., blacklisting, against motor carriers that exercise their right to review the transaction records. The proposed rule does not include an automatic disclosure provision; instead, parties to the transaction would continue to have the ability to review the records upon request. The Agency believes that an automatic disclosure provision would be excessively burdensome to brokers. Though the concerns regarding retaliation appear plausible, the Agency cannot determine how frequently that retaliation would take place. This is, in part, because motor carriers have frequently waived their right to review, which makes it difficult for the Agency to determine if retaliation would be a common problem if the proposed regulation is implemented.

Automatic disclosure would provide the content of records under § 371.3 to all motor carriers, but many motor carriers may choose not to utilize this information. A request-based system ensures that motor carriers who value access to the content of records under § 371.3 receive it, while minimizing the burden for brokers who, under an automatic disclosure requirement, would need to distribute the content of records to all parties, whether or not they wanted to receive it. The Agency is unable to develop quantitative cost estimate comparisons for this alternative due to lack of data on the number of transactions per broker, how many of these transactions include waiver clauses, and how many parties request access to the content of records under § 371.3.

As previously discussed, FMCSA considered whether to include an explicit ban on waivers, as suggested by SBTC and OOIDA, in the regulation and decided against it.

The proposed timeframe of 48 hours to provide requested records would benefit motor carriers by ensuring timely access to information and would produce cost savings for brokers by reducing the frequency at which brokers would need to respond to or consider repeated inquiries under § 371.3. A longer timeframe than 48 hours would diminish these cost savings. The Agency views 48 hours as a balanced approach, promoting both industry efficiency and manageable burdens for brokers. The Agency seeks comment on the 48-hour proposed timeframe to provide requested records.

Under 49 U.S.C. 31136(g), FMCSA is required to publish an advance notice of proposed rulemaking (ANPRM) or proceed with a negotiated rulemaking if a proposed safety rule “under this part” is likely to lead to the promulgation of a major rule. “This part” is Part B of Subtitle VI of Title 49, United States Code, i.e., 49 U.S.C. chapters 311-317. The statutory authority for this rule, however, is derived from the Agency's commercial authorities in Part B of Subtitle IV of Title 49, United States Code, i.e., 49 U.S.C. chapters 131-149. Therefore, the Agency is not required to publish an ANPRM or proceed with a negotiated rulemaking.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, 26 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 (5 U.S.C. 601(6)). 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.

This rule has the potential to impact shippers, brokers, and motor carriers. The Small Business Administration's (SBA) size standard for a small entity (13 CFR 121.201) differs by industry code. The entities affected by this rule fall into many different industry codes. In order to determine the number of affected small entities, FMCSA examined the 2012 and 2017 Economic Census data for two different North American Industry Classification System (NAICS) subsectors: Truck Transportation (subsector 484) and Transit and Ground Transportation (subsector 485).

As shown in Table 3 below, the SBA size standards for subsectors 484 and 485 range from $19.0 million to $43.0 million in revenue per year. To determine the percentage of firms that have revenue at or below SBA's thresholds within each of the NAICS national industries, FMCSA examined data from the 2017 Economic Census. 27 The Census Bureau will suppress (omit) data in Economic Census tables if the data, were it to be known, would allow one contributor's value to be too closely estimated. This can occur when there are very few contributors, or when there are one or two large contributors that dominate the aggregate statistic. 28 In instances where 2017 data were suppressed, the Agency imputed 2017 levels using data from the 2012 Economic Census. 29 Boundaries for the revenue categories used in the Economic Census do not exactly coincide with the SBA thresholds. Instead, the SBA threshold generally falls between two different revenue categories. However, FMCSA was able to estimate the percentage of small entities within each NAICS code.

The percentages of entities with annual revenue less than the SBA's threshold, and therefore considered small, ranged from 93.1 percent to 99.5 percent. Specifically, approximately 93.1 percent of the firms in the category representing brokers, Freight Transportation Arrangement (national industry 488510), had annual revenue less than the SBA's revenue threshold of $20.0 million and would be considered small entities. 30 FMCSA estimates 99.5 percent of firms in the General Freight Trucking, Local (national industry 484110) had annual revenue less than the corresponding SBA's revenue threshold of $34.0 million and would be considered small entities.

The Agency believes that the burden to small brokers would be de minimis. The proposed rule would not impose any burdens on small motor carriers. Small brokers would be required to maintain transparency records electronically, include the date of payment for each service performed in connection with each shipment, and would be permitted to include confidentiality clauses in their contracts. The Agency believes that most, if not all, small brokers are currently maintaining records of their transactions in an electronic format. For brokers who are not maintaining their records electronically, the Agency estimates that these records can be made available electronically at a per transaction cost of $2.75, based on the assumption that it would take an office clerk approximately 5 minutes to create an electronic record of each transaction. The Agency also believes that small brokers likely already retain payment dates for brokered services as part of their standard transaction and accounting processes. The Agency finds that including date of payments with records requested under § 371.3 would constitute a minimal burden. Small brokers could incur some loss in revenues through transfers if the proposed regulation is effective in increasing transparency between brokers, shippers, and carriers. However, the Agency is unable to quantify the frequency and magnitude of possible transfers but believes it would be small based on the following factors:

1. Pricing for brokered contracts is nuanced, and the economic conditions affecting any given brokered contract are unlikely to be identical to those affecting any future brokered contracts. This limits and may possibly negate the effectiveness of using broker information to negotiate for better rates on future contracts;

2. The willingness of motor carriers to accept brokered freight contracts are based on several factors, such that increased transparency may have minimal to no impact on carrier preferences. These factors include costs of fulfilling the contractual obligations, market rate information, existing economic conditions, the type of commodity, and the time of year; and

3. Brokers may find that they can retain current margins due to the relatively strong demand for brokered freight contracts.

Table 3 below shows the complete estimates of the number of small entities within the industries that may be affected by this rule.

Consequently, I certify that the proposed action would not have a significant economic impact on a substantial number of 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 proposed rule so they can better evaluate its effects on themselves and participate in the rulemaking initiative. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult the person listed under FOR FURTHER INFORMATION CONTACT .

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.

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 $200 million (which is the value equivalent of $100 million in 1995, adjusted for inflation to 2023 levels) or more in any one year. Though this NPRM would not result in such an expenditure, and the analytical requirements of UMRA do not apply as a result, the Agency discusses the effects of this rule elsewhere in this preamble.

This proposed rule contains information collection requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). As defined in 5 CFR 1320.3(c), collection of information comprises reporting, recordkeeping, monitoring, posting, labeling, and other similar actions. The title and description of the information collection, a description of those who must collect the information, and an estimate of the total annual burden follow. The estimate covers the time for reviewing instructions, searching existing sources of data, gathering and maintaining the data needed, and completing and reviewing the collection.

Title: Property Broker Recordkeeping Requirements.

OMB Control Number: [2126-NEW].

Summary of the Information Collection: There are two information collections. The first covers brokered transaction recordkeeping, including the requirement for brokers to keep records of their transactions for three years and make those records available for inspection by FMCSA on demand. The second covers disclosure of records to parties involved in a brokered transaction. A broker is obligated to provide transaction records, upon request, to a shipper or motor carrier involved in the transaction.

Need for Information: The first collection of information is needed for determining whether a broker is complying with FMCSA's recordkeeping regulations. The second information collection is needed for resolving disputes between shippers, brokers, and motor carriers arising from brokered transactions.

Proposed Use of Information: In the first information collection, FMCSA would inspect and copy records of brokered transaction, to confirm whether the broker is complying with FMCSA's regulations. This would generally occur as part of an investigation following a complaint about a broker's practices. In the second information collection, shippers and motor carriers would use the records to verify transaction data, answer questions regarding charges and payments made, and provide supporting evidence in the event of disputes.

Description of the Respondents: The respondents are brokers of property, that is, persons who, for compensation, arrange, or offer to arrange, the transportation of property by an authorized motor carrier. The respondents include HHG and non-HHG brokers.

Number of Respondents: The estimated number of respondents is 32,362.

Frequency of Response: For the first information collection, the frequency of response as it pertains to a broker's obligation to make records available for inspection by FMCSA on demand will depend on how often the Agency inspects brokers' transaction records. The Agency believes that this will be a relatively rare occurrence compared to the total number of brokered transactions. For the second information collection, FMCSA finds no material difference in the anticipated frequency of requests for information from HHG brokers and non-HHG brokers. The Agency estimates that 5 percent of brokered property transactions will result in a request for transaction records. This would correspond to an average of 4 requests per year for each HHG property broker and 630 requests per year for each non-HHG property broker.

Burden of Response: The first information collection would impose no annual burden hours on brokers because it is an ordinary and customary business practice. The second information collection would impose an estimated burden of 2 minutes per request.

Estimate of Total Annual Burden: There is no annual burden for the first information collection. For the second information collection, the total annual burden is estimated at 670,000 hours, which corresponds to an estimated $22,110,000 of labor costs. There are no non-labor costs associated with the second information collection.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), FMCSA will submit a copy of this NPRM to OMB for review. You are asked to comment on any aspect of this information collection, including: (1) Whether the proposed collection is necessary for FMCSA to perform its functions; (2) the accuracy of the estimated burden; (3) ways for FMCSA to enhance the quality, usefulness, and clarity of the collected information; and (4) ways that the burden could be minimized without reducing the quality of the collected information.

A rule has implications for federalism under section 1(a) of E.O. 13132 if it has “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” FMCSA has determined that this rule would not have substantial direct costs on or for States, nor would it limit the policymaking discretion of States. Nothing in this document preempts any State law or regulation. Therefore, this rule does not have sufficient federalism implications to warrant the preparation of a Federalism Impact Statement.

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 NPRM would not require the collection of personally identifiable information (PII).

The Privacy Act (5 U.S.C. 552a) applies only to Federal agencies and any non-Federal agency that receives records contained in a system of records from a Federal agency for use in a matching program.

The E-Government Act of 2002, 32 requires Federal agencies to conduct a Privacy Impact Assessment (PIA) for new or substantially changed technology that collects, maintains, or disseminates information in an identifiable form. No new or substantially changed technology would collect, maintain, or disseminate information as a result of this rule. Accordingly, FMCSA has not conducted a PIA.

The Agency will complete 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 PTA will be submitted to FMCSA's Privacy Officer for review and preliminary adjudication and to DOT's Privacy Officer for review and final adjudication.

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.

FMCSA analyzed this proposed rule pursuant to the National Environmental Policy Act of 1969 (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)(1) and (2). The categorical exclusions (CEs) in paragraphs 6(k)(1) and (2) cover requirements pertaining to the duties and obligations of a broker, and the records a broker must keep. The proposed requirements in this rule are covered by these CEs.

As required by 5 U.S.C. 553(b)(4), a summary of this rule can be found in the Abstract section of the Department's Unified Agenda entry for this rulemaking at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202310&RIN=2126-AC63.

Accordingly, FMCSA proposes to amend 49 CFR part 371 as follows:

On September 19, 2024, NHTSA published an NPRM proposing a new Federal Motor Vehicle Safety Standard (FMVSS) which would establish a head-to-hood impact test and performance requirements to minimize the risk of pedestrian head injury. The comment period for the NPRM was scheduled to end on November 18, 2024.

On October 17, 2024, NHTSA received a request for a 30-day extension of the comment period from the Alliance of Automotive Innovation (Auto Innovators). The requestor stated that additional time is necessary to conduct a detailed review of the NPRM and provide constructive feedback on the proposal. Auto Innovators also stated it would need to conduct a detailed review of the accompanying preliminary regulatory impact analysis (PRIA), which was published in the docket after the NPRM. Auto Innovators noted that the extension would be used to evaluate the practicability and complexity of the design changes (and corresponding lead time) needed to meet the proposed requirements, and more fully evaluate the regulatory impact and unanticipated costs.

Pursuant to 49 CFR 553.19 and after thorough consideration of this request, NHTSA has determined that the requestor has provided sufficient justification for an extension, and that the extension is consistent with the public interest. NHTSA agrees that allowing additional time for the public and its stakeholders to provide robust and substantive comments on these complex issues will better inform NHTSA. The agency believes a 30-day extension will provide the public with sufficient time to review the docket and comment on the complex questions raised in the NPRM. Accordingly, NHTSA is granting the aforementioned request and extending the comment period by 30 days.