The Federal Motor Carrier Safety Administration is proposing to reinforce broker transparency regulations.
The administration announced a notice of proposed rulemaking for “Transparency in Property Broker Transactions,” which would reinforce carriers’ and shippers’ right to review a broker’s record of the parties’ transaction.
“We realize some brokers might not like the regulations, but that doesn’t give them the right to blatantly skirt them without any recourse,” Todd Spencer, president of Owner-Operators Independent Drivers Association, said in a 2020 petition for the rule. “Brokers must no longer be given a free pass to avoid compliance with federal transparency requirements, and those who continue to evade the regulations must be held accountable.”
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The proposed rule would reinforce the right to broker transparency by limiting brokers’ ability to avoid the obligation.
Is broker transparency a problem?
Carriers already have a legal right to broker transparency. They have the right to review the records of broker transactions that the carrier was part of. However, brokers use workarounds to avoid the obligation. Due to these workarounds, brokers rarely disclose their transaction records.
Brokers’ workarounds often use contract waiver clauses and paperwork to avoid disclosing their records.
Contracts between brokers and motor carriers can require that the carrier waive their right to transaction records. FMCSA noted that broker-carrier contracts “frequently contain waivers of this right.” An example of one major broker’s contract waiver reads as follows:
19. Broker’s Compensation. Carrier waives any right to view transaction records pursuant to 49 CFR Section 371.3(c) and shall not claim or demand, in whole or in part, any commissions earned by Broker on shipments tendered hereunder. Broker shall not be required to disclose the amount of its commission to Carrier, and Carrier shall not attempt to ascertain the amount of such commission from any person.
FMCSA found that, even though “most, if not all, brokers are currently maintaining records of their transactions in an electronic format,” many brokers also avoid sharing their transaction information by making the records only available in paper copies at their principal place of business.
Another way brokers can avoid the obligation is without action but with an implicit threat of retaliation. Though retaliation isn't always legal, a broker can refuse to do business with a carrier that asked for transaction records, FMCSA suggested in the notice. This further incentivizes carriers to abandon their right to broker transparency.
Broker transparency is an issue for motor carriers’ efficiency. Opaque transactions empower brokers’ and weaken carriers’ negotiating power. Carriers that cannot review broker transactions are less able to identify broker fraud or know how much the broker profits from a load.
FMCSA noted that “free markets require transparency to operate efficiently” and that brokers’ transparency workarounds contribute to “some degree of market failure or inefficiency.”
FMCSA’s broker transparency solution
The proposed rule lays out four amendments to the regulation that requires brokers to maintain transaction records (49 CFR section 371). FMCSA explained how the amendments could protect motor carriers and promote the efficiency of commercial transportation. FMCSA proposed the following:
- Require property brokers to keep their records in an electronic format. Ensuring electronic records would remove the “paper copies” workaround that some brokers use.
- Eliminate the distinction between brokerage and non-brokerage services. Removing the non-brokerage distinction would ensure that records give full visibility into the transactions’ payments, fees, and charges.
- Re-word the broker transparency requirement from “a right given to the transacting parties” to instead “a regulatory duty imposed on brokers.” This would reframe the nature of the regulation to clarify brokers’ obligations.
- Require brokers to provide the records within 48 hours of a party’s request for the records. A clear, tight deadline would ensure that the requesting party receives information in a timely manner.
The proposed rule could still change substantially before FMCSA publishes it as a final rule. FMCSA is accepting comments on the rule until January 21, 2025.
Trucking industry’s reaction to the rule
FMCSA directly credited OOIDA and the Small Business in Transportation Coalition for petitioning the rulemaking. Both organizations petitioned FMCSA in 2020 to require electronic transaction records and to explicitly prohibit disclosure waivers.
OOIDA’s Spencer welcomed the proposed rule.
“As FMCSA noted, broker transparency is necessary for a fair, efficient transportation system and is especially important to help carriers defend themselves against alleged claims on a shipment,” Spencer said in a statement. “We look forward to responding to FMCSA’s request for feedback and, most importantly, will continue to press the agency, lawmakers, and other regulators to make all resources available to enforce these regulations and ensure that brokers finally play by the rules.”
SBTC leadership, however, was more critical of the proposed rule. James Lamb, executive director of SBTC, said in a statement on LinkedIn that it was “disappointing” that FMCSA did not ban disclosure waivers.
“FMCSA has gutted our request while at the same time trying to make an appearance of strengthening the rule,” Lamb said. “They say transparency should be a duty of brokers, not a right of carriers, but that is semantics because they fail to connect all the dots and say this is a duty and trying to waive such a duty constitutes evasion of regulation.”
While OOIDA and SBTC called on FMCSA to implement the waiver ban, the administration declined to do so. FMCSA noted in its proposed rule that “as a general principle, parties are permitted to waive any right unless Congress, by statute, specifically makes a right non-waivable.”
One organization representing brokers, the Transportation Intermediaries Association, wanted the administration to discard the right to broker transparency altogether. TIA condemned the rule, saying the right to transparency “is obsolete and un-American” and “has no place in today’s highly transparent marketplace.”
TIA noted that, during the pandemic, the National Consumer Complaint Database recorded zero complaints related to the issue, while freight fraud complaints soared. “This stark disparity highlights the misaligned priorities of the FMCSA under the current administration,” TIA stated.
