Why are Freight Broker surety bonds required?
The Federal Motor Carrier Safety Administration (FMCSA) requires freight brokers and forwarders to have a freight broker surety bond. A surety bond is an agreement between 3 participants- the principle, the obligee, and the surety.
A Freight Broker surety bond aims to hold motor carriers to a stricter standard which prevents unqualified people from entering the industry. Also, it keeps high-risk drivers off the road. The Moving Ahead for Progress in the 21st Century Act passed in 2012 has increased the required surety bond amount for freight brokers from $10,000 to $75,000.
A BMC-85 trust agreement enforces $75,000 of collateral up front to be held in a trust during the time a license is valid. Usually, the collateral is held by a trust company or a bank. BMC-85 trust companies do not have to be licensed by the FMCSA and do not have insolvency protection. This type of surety bond is more risky since trust companies may not be able to pay back the debt which would lead to bankruptcy. If that happens, the carrier can lose their $75,000 trust.
The biggest advantage of a BMC-84 surety bond is that the broker is not required to pay the $75,000 up front. The claims will be paid out by the surety company up to the full amount. However, the broker has to reimburse the surety company for any paid claims. A surety bond means that $75,000 worth of assets are not tied up in a trust which allows a sense of financial security.
Here at Surety1, we can help you with your BMC-84 surety bond.
Give us a call at 1-877-654-2327 or on our website at Surety1.com