Bill Would Mandate Bond of $100,000 for Brokers

This story appears in the July 4 print edition of Transport Topics.

An anti-fraud bill introduced in Congress would raise the freight broker surety requirement to $100,000 and mandate that motor carriers who broker freight loads obtain separate broker authority.

The Fighting Fraud in Transportation Act of 2011, introduced June 24 by Rep. Frank Guinta (R-N.H.) and Rep. Russ Carnahan (D-Mo.), is supported by American Trucking Associations, the Transportation Intermediaries Association and the Owner-Operator Independent Drivers Association — three trade groups that often don’t agree on transportation legislation.

Supporters said the legislation would go a long way toward keeping fraudulent brokers out of the business and help insure that truckers get paid for freight they haul.

Opponents claim the higher surety bond would discourage small brokers from entering or staying in the business.

The bill would also increase requirements and disclosures for any person or company seeking to obtain broker or freight forwarder authority, toughen penalties for violations of broker regulations, and establish strict guidelines for companies that provide brokers with surety bonds and on how they administer those bonds.

“This law would put a stop to a system that allows ruthless brokers and scam artists to continue to operate unchecked,” Todd Spencer, executive vice president of OOIDA, said in a statement. “Too often, we’ve seen deceitful brokers get away with collecting payments from shippers but cheating truckers out of what is rightfully theirs.”

A similar bill introduced in the Senate last year, the Motor Carrier Protection Act, failed to muster enough support to clear the Senate Commerce Committee (6-21-10, p. 4).

Robert Voltmann, TIA’s president and chief executive officer, said the three trade organizations had common ground in toughening up the broker requirements.

“The motor carriers are stung by companies that take freight, flip it to somebody else, and don’t pay,” Voltmann told Transport Topics. “We want the truck driver paid. We want the truck company paid.”

Voltmann refuted the notion that the bill would put small brokers out of business. “What it will squeeze out are underfunded or undercapitalized brokers,” Voltmann said. “A $100,000 bond to move DOD freight costs $1,500. If you can’t afford $1,500, what right do you have to collect someone else’s money? You shouldn’t start a brokerage if you don’t have proper capitalization.”

But Daniel Larson, chief operating officer of Pacific Financial Association Inc., the nation’s largest provider of property broker surety instruments, said the bill would not reduce broker fraud and not be good for the transportation industry.

“Our statistical information indicates that a $100,000 bond is unnecessary and will force too many brokers out of business,” Larson told TT.

Larson said Pacific handles more than 10,000 claims a year, and most broker defaults would be “well handled” with a $20,000 bond.

Very few brokers get into the business with the intent of committing fraud, he said, and many payment problems are the result of a carrier who, for example, has a shipper that goes bankrupt, in turn causing the carrier to “get upside down.”

“Truckers think they’re going to get saved by these bonds,” Larson said. “History points out that you get saved by doing business with people that you know, you respect, or who you’ve properly vetted.”

The bill will require “just about every single motor carrier to get broker authority,” Larson added. “How many small truckers do they think can afford a $100,000 broker bond?”

ATA spokesman Sean McNally said a majority of ATA carriers have agreed that the positives in the bill outweigh the negatives and that ATA should support it.

“ATA strongly supports the legislation’s increase in the broker bond to $100,000,” McNally said. “That increase, along with the stricter regulatory oversight of brokers required by the bill, will go a long way to remedying the problem of motor carriers not getting paid by unscrupulous brokers.”

But McNally conceded that other requirements of the bill, notably that motor carriers no longer can broker loads under their motor carrier authority, create concerns for some motor carriers.

“Unfortunately, ATA was not able to secure any modification of that language from the coalition supporting the bill,” McNally said.

David Owen, president of the National Association of Small Trucking Companies, called the legislation “a horrible way to go” and said it is designed to help “mega-brokers.”

Owen said the higher bond won’t stop fraud. Most small carriers that broker deals are honest and use their brokerage to be more efficient and retain contracts, he said.

“It’s horrible to have an industry where a few crooks can go out and intentionally rob trucking companies. I think that’s a shame,” Owen said. “But most carriers, it only happens to once. The next time, they check the guy out a little better.”