June 26, 2016

Re: Broker and Freight Forwarder Financial Responsibility Roundtable (Docket No. FMCSA-2016-0102)

Prior to attending the roundtable, upon reading the pre-roundtable comments submitted by TIA and JW Surety Bonds, anyone not familiar with our (the BMC-85 trustees) business practices might have expected to see a busload of torch-wielding angry truckers at the Department of Transportation building on May 20, demanding our heads on a platter. However, at the roundtable, I noticed, and I hope that the FMCSA members took note, that no complaints were lodged against BMC-85 trustees by carriers, shippers or brokers. The BMC-84 surety providers failed to point out a single relevant instance of malfeasance by BMC-85 trustees.1 Instead, I listened to the opposite side of the table wail that the BMC-85 trustees are not bogged down in the same regulations that the BMC-84 surety providers are. Yes, the same rules and oversight that the insurance barons brought upon themselves and their progeny after centuries of insurer misconduct and public exploitation.

A representative for the Owner-Operator Independent Drivers Association did appear. Apparently, the experience of his constituency is that the BMC-84 sureties deal the most sharply with the truckers. He described a gambit commonly used by the insurers to shave their losses. In these interpleader actions, the truckers money is placed with the court – not the truckers.
The truckers are then forced to hire a lawyer to answer in court, or to otherwise personally appear in a courtroom, potentially hundreds of miles away, to assert their claim for a small sliver of pie. What the truckers can’t afford to claim, the sureties keep, and it mounts up. The truckers are further injured in that the corpus of the BMC-84 security is allowed to be depleted by the sureties’ legal fees expended in these interpleader actions.2 This is an advantage that clearly compromises not only the timely settlement of the truckers accounts, but also diminishes the truckers’ recovery by depleting the funds available to pay claims.

The BMC-85 trustees believe that it is the truckers who count. And, the BMC-85 trustees are most the efficient at delivering dollars directly to the truckers when brokers fail to. That’s money to the truckers – not the courts and the lawyers.

The doom-portending numbers and statistics proffered by the BMC-84 sureties may seem impressive at first glance. And those colored charts – very persuasive! That is, until you remind yourself that there is not even an existing problem that the FMCSA needs to solve. Of course, there is a problem that the sureties want solved – “How do they reduce competition?” These clever pitches from the ever-calculating sureties are geared precisely at resolving their problem. Yet, they failed to provide a speck of evidence to justify shackling trustees with additional rules – foremost, because BMC-85 trustees do in fact honor their financial commitments to pay the truckers; but, also, because there is no reason to foresee a wide-scale failure of freight-brokers. For such a ubiquitous meltdown to occur, it would have to be accompanied by catastrophic macro-economic event the likes of which neither the trustees nor the insurers would survive

1 The recent U.S. prosecution of Bonnie Jean Warren is now oft cited for obvious reasons, but it is a red herring. Bonnie Warren’s “wire fraud” case involved her misappropriation of money given over by freight brokers’ for placement into a trust fund. Her’s was a crime purposefully committed against the brokers. Her case was not about failing to pay truckers. This is like comparing a chair to a dirt clod – ludicrous.

2 An option not available to BMC-85 trustees.

anyway – no matter the quality of the backing security. Again, it is clear that a reduction in competition is the chief end of all of this whining by the BMC-84 surety providers.

I do think that the most positive suggestion to have come out of the roundtable discussion is for the development of a protocol for immediate cancellation of authority upon failure of a broker to respond within a 24-hour period. One member of the FMCSA made an issue of due process; however, I failed to see how the broker will be provided additional due process during the 30 day waiting period. What additional investigation or solicitation of comment is conducted or sought by the FMCSA during this existing 30 day period that could not be (or is not already) conducted or sought by the BMC-85 trustees during the 24-hour period after the trustee notifies the broker of a claim? What instance has ever been found of a broker, who utterly fails to respond in a 24-hour period, making good his accounts within another 29 days? None.

Compared to Pacific Financial Association, Inc., the other BMC-85 trustees are small players in the freight broker security market. However, Pacific Financial – by the fact that itself was founded by a woman – would have, at least for some time, been in the class of “disadvantaged business enterprise(s)” (DBE) like many of the trustees listed in JW Surety’s data graphic of its May 18, 2016 letter to Dr. Folsom. If, as the graphic shows, the top seven BMC-85 filers account for 94% of the total BMC-85 activity, then you can be assured that women, minorities, and other DBEs, are making a significant contribution to delivering freight via our nation’s roads. The FMCSA must be careful that it does not, in its zeal to foreclose some improbable catastrophe (dreamed up by the surety providers), unwittingly attend the systematic elimination of DBEs from participation in the transportation economy.

Lastly, please keep in mind that, often, “less is more” in terms of effective regulations. There is another maxim, so often repeated that, sadly, it is almost cliché. Nonetheless, put in the Oklahoma vernacular, “if it ain’t broke, don’t fix it”. The insurance industry in the U.S. has been regulated by the individual states since the mid-nineteenth century. With such a long history of greed and competitor abuse and consumer abuse, its regulation is not unwarranted. The insurance industry is an old and evolving one. Its methods of devouring competition are honed, efficient, subtle, and insidious. If the sureties can now convince the FMCSA to just fix, and fix and fix something until its finally broken and useless for competitors, then the FMCSA will have stamped out viable alternatives to the BMC-84. Who wins then? Not the truckers.

Cynthia Martinian, President Liberty National Financial Corp.