Provision in Senate’s Transport Legislation Would Raise Broker Surety Bond to $100,000

This story appears in the March 26 print edition of Transport Topics. Click here to subscribe today.

A provision in the Senate transportation bill would raise the surety requirement for freight brokers to $100,000 from $10,000.

The measure also requires trucking companies that broker freight to obtain separate operating authority.

“The language raising the broker bond amount of $100,000 is the result of a compromise by a number of affected groups,” Prasad Sharma, general counsel for American Trucking Associations, told Transport Topics, “and carriers will benefit from the increase in required financial responsibility.”

The provision was contained in the surface transportation bill the Senate passed on March 14. The bill also authorized $109 billion in transportation spending. The House has not passed its own transportation reauthorization bill, but a current proposal contains the measure.

Raising the requirement is the result of an agreement among ATA, the Transportation Intermediaries Association and the Owner-Operator Independent Drivers Association, said Robert Voltmann, TIA president.

“The Senate bill is our exact language, and we fully support it,” Voltmann told TT.

After two bills to raise the surety requirement previously failed in the Senate, TIA agreed to support the move if the other groups supported the separate authority provision.

However, one company that issues surety bonds to brokers cautioned that the measure, if approved, would put 75% to 85% of the nation’s freight brokers out of business.

“On the face of it, it’s preposterous,” said James Sanders, a consultant at the Pacific Financial Association Inc., which provides bonds for about 25% of brokers in the United States.

The measure is designed to put small brokers out of business by requiring them to obtain surety that no bond company would give them because small brokers rarely have the collateral necessary, Sanders said.

The premium for a $100,000 bond is typically less than $5,000 per year, but that’s not what would push brokers out of business, Sanders said.

The surety requirement would remain the same for brokers of all sizes, no matter how many separate offices or agents they have. Sanders said that this provision benefits large brokers and probably would encourage small brokers to become agents of the larger ones.

Voltmann rejected Sanders’ arguments.

“These are specious arguments by fearmongers,” he said, “and they’re being spread by the people who this legislation is designed to stop — the cheats, the churners and the thieves.”

The legislation may put brokers out of business, but those are the ones trying to cheat the system, he said. It also will stop underfunded brokers from operating.

In addition, the legislation’s authority requirement will prevent carriers from rebrokering freight, Voltmann said.

The new financial requirements on brokers are justified because the companies handle other people’s money, essentially acting like a bank, he said.

“If you cannot afford $5,000 a year to protect $100,000 of someone else’s money, then you don’t belong in the business,” he said.

The new surety level will help ensure that carriers get paid by brokers, even if brokers close down, said ATA’s Sharma.