On November 15th 2023, the Federal Motor Carrier Safety Administration (FMCSA) approved the new rulemaking which was proposed earlier this year, which primarily affects freight brokers that have a BMC-85 trust. This new rule making becomes effective January 16th, 2024.
While every licensed freight broker in the U.S. has a BMC-84 freight broker bond or a BMC-85 trust on file, many brokers aren't aware of which financial security they have on file. You can confirm which of the two products you have on the FMCSA licensing portal.
How the New Rules Affect Freight Brokers
There are five primary important rules that have been adopted with this new approved rule-making change, and these changes will negatively impact BMC-85 trust providers.
Rule #1: Assets Readily Available
While both the BMC-85 trust and the BMC-84 freight broker bond options are required to be in the mount of $75,000, the new rule making now clearly defines what consists as acceptable assets within a BMC-85 trust; those assets are:
- $75,000 cash
- Treasury Bonds
- An Irrevocable Letter of Credit (ILOC) issued by an FDIC Insured bank (finance companies are no longer acceptable per the FMCSA).
This means is that if you are a freight broker that has a BMC-85 trust in place, and you did not hand over either $75,000 in cash or $75,000 worth of treasuries to your trust provider, then your trust will no longer be acceptable under the new rules and your license will be revoked. For those freight brokers that did transfer $75,000 of their own money/treasuries to their trust provider, you should be in good shape, with one large caveat that brings us to the next rule...
Rule #2: Companies Eligible to provide Trusts for BMC-85 Filings
This new rule clearly spells out that the only companies which are able to provide BMC-85 trusts are FDIC insured financial institutions (in other words, banks). Going back to rule #1 above, if you have a letter of credit which is not issued by a bank or is an ”internal letter of credit” issued, then your trust will no longer be valid. If you provided $75,000 cash to your bank, and your bank issued an ILOC (Irrevocable Letter of Credit), then you can rest easy, as long as your bank is an FDIC an insured institution.
Both rule #1 and rule #2 will be equally challenging for current BMC-85 trust providers since most BMC-85 trusts do not have the required assets readily available in the form of cash or treasury bonds. Equally as problematic, the top five BMC-85 trust providers are loan and finance companies, not banks. The FMCSA has removed loan and finance companies as being acceptable trust providers of the BMC-85 security. Therefore, the largest BMC-85 trust fund provider and all the smaller ones that follow, will have some difficult decisions to make.
If you happen to be one of the very few that did hand over $75,000 cash to your trust fund provider, we would strongly suggest that you consider replacing your trust with a BMC-84 freight broker bond and getting your $75,000 back. Why? Because the BMC-84 freight broker bond is issued by acceptable and approved insurance carriers which have already been vetted by the Federal government, which leads to far less potential complications with your operating authority.
Rule #3: Immediate Suspension of Broker Operating Authority
The FMCSA requires that all freight brokers have a minimum financial security in place of $75,000 (e.g., BMC-84, BMC-85). In the event that a valid claim is paid out of your trust or freight broker bond the FMCSA may suspend your operating authority. If the financial security falls underneath $75,000, freight brokers has 7 calendar days to make that $75,000 whole again, otherwise your operating authority is at risk.
Rule #4: Bond & Trust Providers Responsibility with Broker Financial Failure
Bond and trust providers alike can institute financial failure on the freight broker as grounds for canceling a BMC-84 freight broker bond or a BMC-85 trust when a valid payment has been paid out against the bond or trust (especially after receiving multiple claims in a row). In this new rule, the FMCSA provides guidance as to what financial failure is:
“any payments made or other defaults pursuant to the regulatory provision that addresses the Situation's under which a broker or Freight forwarders operating Authority may be immediately suspended, which the broker or Freight forwarder does not cure”.
If the freight broker is experiencing financial failure, the bond or trust provider must notify the FMCSA and begin cancellation of the financial security in place. As a result, the FMCSA will publish a notice of financial failure.
Rule #5: Enforcement Authority
In regard to any bond or trust fund providers, if there are circumstances which the FMCSA deems those providers to be in suspension, the agency will first provide notice of suspension to the bond/trust fund provider, followed by 30 calendar days for the provider to respond before a final decision is made. The FMCSA also has monetary damages of $12,882 for each and every violation. Furthermore, if suspended, the bond or trust provider will no longer be eligible to provide broker financial services to the FMCSA for a minimum of 3 years.
Summary & Recommendations
All of these new rule making changes have been made in an effort to create transparency over what are acceptable assets contained within these BMC-85 trusts to guarantee liquidity. The FMCSA feels strongly that this new rulemaking will level the playing field and require trust fund providers to have liquid trusts available to pay claims as Congress intended. There have been far too many BMC-85 trust fund providers which have taken deposits from honest freight brokers only to become insolvent and go out of business with the freight brokers hard-earned money. There are multiple instances of BMC-85 trust providers which have already met this certain doom.
We strongly suggest that all freight brokers revisit if they have a BMC-84 freight broker bond on file as their financial security, or the BMC-85 trust. If you do have a BMC-85 trust in place, it is easy for you to apply for a BMC-84 freight broker bond with JW Surety Bonds. We are the largest writer of BMC-84's in the U.S., with roughly 42% of every freight broker in existence today. We represent multiple insurance companies who actively participate in writing the BMC-84, and we even have our own freight broker program with internal underwriting authority to be able to get you a quote same day.