Executive Briefings

How the $100,000 Surety Bond Can Fight Transportation Fraud

Load board scams have run rampant in the transportation industry for a few years now. Carriers and brokers who are tired of losing money to scammers have implemented the only tactic available to them: a non-paid freight fee. However, this fee has not deterred scammers from proliferating and has only increased costs to all parties involved in transporting a load.

Unfortunately, the current lethargic economic conditions have also contributed to an upsurge in scams as the unemployed have looked for quick solutions to their financial problems. With load board scams increasing in prominence, the federal government has been made aware of the growing problem and is taking steps to assist in the effort to remove scam artists from the marketplace.

H.R. 2357, The Fighting Fraud in Transportation Act of 2011, supported by the Transportation Intermediaries Association (TIA), the Owner-Operator Independent Drivers Association (OIDA) and the American Trucking Associations (ATA), is the first step to eliminating scams. Introduced in June, the bill is structured to enforce regulations already in place from the Interstate Commerce Commission Termination Act of 1995. It outlines several policies to make transportation regulation more effective, thereby protecting carriers, brokers and consumers from unscrupulous practices.

One of the most controversial aspects of the bill is the requirement for brokers and freight forwarders to carry a $100,000 surety bond instead of $10,000. A larger bond amount means greater bond liability. This makes sureties stricter and raises the bar for freight brokers and their financial condition, making it harder for scammers to stay in business. While this increase is designed to weed out deceptive brokers, it will also make it much more difficult for small brokers to stay in business.

Many freight forwarders and brokers have not lent their support for the bill because they cannot afford the higher bond amount. Most of these firms are small family-owned businesses with limited cash flow. Having to post the $100,000 bond could be very challenging for them. Fortunately, it is possible for small broker firms to avoid the expense by partnering with 3PLs which already post the $100,000 bond and still retain their autonomy.

The TIA board of directors voted to fully support the Fighting Fraud in Transportation Act because the high bond increase is offset with significant regulation changes. These changes will protect the professional brokerage industry from scam artists and other illegitimate companies that give the industry a negative reputation.

The bill revises and consolidates federal registration, security requirements and regulation of broker surety companies to ensure fulfillment of their obligations to brokers and forwarders. Significant penalties for failing to comply will also be enforced, including unlimited liability for freight charges for those operating without the required authority. Most scam artists fail to obtain active authority before brokering freight, or they steal authority from a legitimate business to make themselves look trustworthy. However, with unlimited liability there will be no cap on suit amounts against the scammers. This combined with the high bond amount will make it highly unprofitable for scam artists to stay in business. These tighter regulations and penalties offer significant protection as well as provide a better solution to financial recompense to carriers and brokers.

Under the bill, the FMCSA will annually screen its list of registered motor carriers, brokers and freight forwarders to ensure the list accurately reflects only entities with active authority. Each business will receive a distinctive registration number for each of their provided services. With this in place, legitimate businesses will have better means to prove trustworthiness while making it easier to track unscrupulous businesses.

The bill also details a new requirement stating there must be at least one corporate officer who has met minimum training standards or equivalent experience in all broker or freight forwarder firms. This again is directed at scammers as most do not have any training in brokering freight. They also most often have little to no experience in the transportation industry at all.

If no action is taken, scams will only continue to proliferate. It is in the best interest of transportation companies to lend their support for the Fighting Fraud in Transportation Act. It allows for carriers payment with greater certainty and ensures the legitimacy of brokers and freight forwards. The higher bond requirement will also make it much more difficult and cost-prohibitive for scammers to enter the game.

Implementing the Fighting Fraud in Transportation Act will benefit carriers, shippers and the end consumer. As the risk of being scammed decreases, the carrier community can eliminate the non-paid freight factor when quoting rates, allowing brokers, freight forwarders and 3PLs to lower their costs to the end consumer. These funds can then be reallocated, which will result in a slight uptick in profit.

Source: TTS

Load board scams have run rampant in the transportation industry for a few years now. Carriers and brokers who are tired of losing money to scammers have implemented the only tactic available to them: a non-paid freight fee. However, this fee has not deterred scammers from proliferating and has only increased costs to all parties involved in transporting a load.

Unfortunately, the current lethargic economic conditions have also contributed to an upsurge in scams as the unemployed have looked for quick solutions to their financial problems. With load board scams increasing in prominence, the federal government has been made aware of the growing problem and is taking steps to assist in the effort to remove scam artists from the marketplace.

H.R. 2357, The Fighting Fraud in Transportation Act of 2011, supported by the Transportation Intermediaries Association (TIA), the Owner-Operator Independent Drivers Association (OIDA) and the American Trucking Associations (ATA), is the first step to eliminating scams. Introduced in June, the bill is structured to enforce regulations already in place from the Interstate Commerce Commission Termination Act of 1995. It outlines several policies to make transportation regulation more effective, thereby protecting carriers, brokers and consumers from unscrupulous practices.

One of the most controversial aspects of the bill is the requirement for brokers and freight forwarders to carry a $100,000 surety bond instead of $10,000. A larger bond amount means greater bond liability. This makes sureties stricter and raises the bar for freight brokers and their financial condition, making it harder for scammers to stay in business. While this increase is designed to weed out deceptive brokers, it will also make it much more difficult for small brokers to stay in business.

Many freight forwarders and brokers have not lent their support for the bill because they cannot afford the higher bond amount. Most of these firms are small family-owned businesses with limited cash flow. Having to post the $100,000 bond could be very challenging for them. Fortunately, it is possible for small broker firms to avoid the expense by partnering with 3PLs which already post the $100,000 bond and still retain their autonomy.

The TIA board of directors voted to fully support the Fighting Fraud in Transportation Act because the high bond increase is offset with significant regulation changes. These changes will protect the professional brokerage industry from scam artists and other illegitimate companies that give the industry a negative reputation.

The bill revises and consolidates federal registration, security requirements and regulation of broker surety companies to ensure fulfillment of their obligations to brokers and forwarders. Significant penalties for failing to comply will also be enforced, including unlimited liability for freight charges for those operating without the required authority. Most scam artists fail to obtain active authority before brokering freight, or they steal authority from a legitimate business to make themselves look trustworthy. However, with unlimited liability there will be no cap on suit amounts against the scammers. This combined with the high bond amount will make it highly unprofitable for scam artists to stay in business. These tighter regulations and penalties offer significant protection as well as provide a better solution to financial recompense to carriers and brokers.

Under the bill, the FMCSA will annually screen its list of registered motor carriers, brokers and freight forwarders to ensure the list accurately reflects only entities with active authority. Each business will receive a distinctive registration number for each of their provided services. With this in place, legitimate businesses will have better means to prove trustworthiness while making it easier to track unscrupulous businesses.

The bill also details a new requirement stating there must be at least one corporate officer who has met minimum training standards or equivalent experience in all broker or freight forwarder firms. This again is directed at scammers as most do not have any training in brokering freight. They also most often have little to no experience in the transportation industry at all.

If no action is taken, scams will only continue to proliferate. It is in the best interest of transportation companies to lend their support for the Fighting Fraud in Transportation Act. It allows for carriers payment with greater certainty and ensures the legitimacy of brokers and freight forwards. The higher bond requirement will also make it much more difficult and cost-prohibitive for scammers to enter the game.

Implementing the Fighting Fraud in Transportation Act will benefit carriers, shippers and the end consumer. As the risk of being scammed decreases, the carrier community can eliminate the non-paid freight factor when quoting rates, allowing brokers, freight forwarders and 3PLs to lower their costs to the end consumer. These funds can then be reallocated, which will result in a slight uptick in profit.

Source: TTS