Editor’s Note: This is a guest blog from our friend Vic Lance. Vic is the founder and president of Lance Surety Bond Associates. In this post, Vic discusses the roundtable that the FMCSA plans on having later this month to discuss the BMC-85 trust fund and what it means to freight brokers.
The Federal Motor Carrier Safety Administration is organizing a Broker and Freight Forwarder Financial Responsibility Roundtable on May 20 to discuss BMC-85 trust funds, used by freight brokers and forwarders. It seeks feedback on these practices due to some recent complaints. The biggest issue with trust funds, as it appears now, relates to the procedures in case of brokers’ financial failures. The BMC-85 trust fund is one of the options for freight brokers and forwarders to meet the $75,000 financial guarantee requirement set by the FMCSA during the licensing process. The other way to comply with the rule and obtain their operating authority is to post a BMC-84, namely, a freight broker surety bond.
BMC-85 Trust Fund Issues
The FMCSA is collecting information from shippers and motor carriers about any difficulties they have met when making claims against freight brokers and forwarders. The point is to understand whether the interests of the parties that need to be protected by the BMC-85 trust fund are, in fact, actually safeguarded.
This initiative comes after many complaints related to BMC-85 trust fund providers have been filed with the FMCSA. The Administration also had to provide help to claimants who wanted to launch a procedure against brokers and forwarders with financial problems.
Due to these occurrences, the FMCSA wants to ensure that the financial instruments are working well and that freight brokers are solvent so that they can cover their financial obligations to fleets and owner-operators.
The Roundtable Questions on BMC-85
To address these pressing issues, the FMCSA is seeking feedback on a few core issues. It is collecting information if any BMC-85 trust fund operators have consistently failed to consider claims made by shippers and motor carriers.
The second point of concern is the type of assets that BMC-85 trust funds require to hold. The FMCSA is also looking to understand what is considered as the best composition of assets for these funds – solely cash or a combination with other liquid financial instruments.
A few questions are concentrating on the regulation of BMC-85 trust funds as well. The FMCSA wants to understand whether other authorities regulate trust fund filers and whether freight brokers and forwarders should be required to showcase the solvency of the trust funds they choose.
Last but not least, the FMCSA would like to get input from all interested parties what actions it can take to make the claims process smoother and to tackle issues with trust funds solvency. The goal is to ensure that shippers and carriers who are making legitimate claims against a trust fund can collect their legal reimbursement with ease.
The Administration underlined that the talks will not focus on any increases to the financial responsibility limits, currently set at $75,000 since 2013. Thus, brokers and forwarders should not worry about their requirements, but there might be changes for the financial institutions providing the trust funds.
The roundtable will take place on Friday. May 20 from 9:30 am to 4:30 pm. The session is open to the general public and will be held at the Media Center of the U.S. Department of Transportation in Washington, D.C.
Financial Guarantee Options For Freight Brokers and Forwarders
In 2013, the FMCSA introduced a higher requirement for the financial guarantee that freight brokers have to provide as a part of their licensing process. Earlier, the amount was $10,000, which was then increased to $75,000 in the form of either a BMC-85 trust fund or a BMC-84 freight broker bond.
The main difference between the two options relates to the initial investment that brokers and forwarders have to make to satisfy the FMCSA requirement. In the case of BMC-85 trust funds, the whole amount needs to be provided upfront and should stay in the fund for the duration of the license. As for BMC-84 surety bonds, brokers need to pay only a few percentages of the sum and renew their bonds annually. Their surety then guarantees that they can provide compensation up to $75,000 if a claim against them gets proven.
The purpose of both the BMC-84 and BMC-85 is to protect shippers and carriers from fraudulent activities or financial failures by freight brokers and forwarders.
Individuals who are interested in sharing their opinion on the topic but would not be able to attend the roundtable physically can submit their comments to the FMCSA online.
What is your experience with BMC-85 trust funds? Do you see a reason for the FMCSA to introduce changes for it? Please share your thoughts in the comments below.