December 5, 2013

Nearly 2,000 brokers lose operating licenses following warning notice on higher surety bond limits

Loss represents about 10 percent of U.S. property broker universe.

By Mark B. Solomon

Nearly 2,000 property brokers have lost their operating authority this week after failing to comply with a new Congressionally mandated increase in surety bonds used to pay claims by truckers for late payment or nonpayment for their services, according to a carrier marketing website.

The license revocation process began Dec. 2 after the expiration of a 60-day grace period established by The Federal Motor Carrier Safety Administration (FMCSA) for brokers to comply with the higher limits. FMCSA, a unit of the Department of Transportation, oversees the operations of freight brokers, among other tasks. The data came from My Carrier Resources, a Platte City, Mo.-based company run by Michael J. Curry, who said he has 37 years of transportation experience, 30 of them as a broker. Curry said he obtained the information on the revocations from the FMCSA website.

Language incorporated in the 2012 law re-authorizing the nation's transportation funding programs required brokers to post a $75,000 surety bond to guarantee payment to motor carriers if the broker fails to make good. The previous bond amount had been $10,000.

It is unclear how many brokers voluntarily surrendered their licenses versus how many had their authorities revoked. Warning notices to affected brokers were sent starting Nov. 1. These notices informed brokers that their authorities would be pulled if they didn't demonstrate compliance, according to Curry.

Notices were sent to approximately 9,000 brokers starting Nov. 1 and continuing from Nov. 4 through Nov. 8, Curry said. On Monday, 1,900 brokers had their operating authorities revoked, he said. That was followed by 22 on Tuesday, and 855 yesterday, Curry said. As of mid-day today, the FMCSA site reported three revocations, all of them voluntary, Curry said. The revocation period from the November round of notices is set to run until Dec. 10, Curry said.

Brokers would be eligible for reinstatement if they meet the higher bonding requirements, Curry said. It is estimated that there are 21,000 property brokers operating in the United States.

The battle over the bonding levels has pitted the Transportation Intermediaries Association (TIA), the Owner-Operators Independent Drivers Association (OOIDA), and the American Trucking Associations against independent broker interests represented by the Association of Independent Property Brokers & Agents (AIPBA). Independent broker advocates said thousands of brokers unable to either come up with the higher upfront payment or obtain a bank letter of credit attesting to the availability of funds would be driven out of business or become agents of larger brokers. They also accused TIA of trying to corner the market on surety bond underwriting, a claim TIA has denied.

Supporters of the higher bond levels have argued that the increase was reasonable because the $10,000 threshold had remained in force for 30 years. They also maintained that it was part of a broader effort to ensure that the brokerage segment, which has long had a reputation for shady activity, would be populated by ethical, well-run, and well-capitalized firms.

AIPBA had been willing to agree to a $25,000 surety bond threshold as an inflation-cost adjustment. Carrier interests, meanwhile, were seeking bond levels well into six figures.

Last week, a federal appeals court in Atlanta denied an AIPBA request for a temporary stay of the FMCSA's action.

More articles by Mark B. Solomon

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