The Federal Motor Carrier Safety Administration issued a report to Congress this week on "Unlawful Brokerage Activities," and essentially admitted it can't crack down on bad actors without some serious help.
The report comes amid widespread hacks hobbling major load boards and brokers reporting "hemorrhaging" cash to freight fraudsters as the problem seems to grow nearly unchecked, but it's written in response to an appropriations bill passed in 2022 that required FMCSA to ensure compliance with 49 U.S.C. 14916, Unlawful Brokerage Activities.
The report seeks to fully spell out FMCSA's current route toward assessing fines for what it calls "commercial violations," likewise "alternative enforcement mechanisms for unlawful brokerage activities" available to the agency. Also at issue is "whether new legislative authority or the clarification of existing legislative authority is necessary to address unlawful brokerage adequately," the report states. "Additionally, this report addresses safety concerns arising from unlawful brokerage activities."
Previous reporting revealed that FMCSA refuses to asses civil penalties for unlawful brokerage, even in cases where the broker has demonstrably broken laws and refused to pay a carrier, because of a 2019 Administrative Law Judge ruling often referred to as the "Riojas decision."
As previously reported, in the Riojas case a family was found guilty of "reincarnating" fraudulent carriers and not disclosing the common ownership of several FMCSA-regulated entities. United States Department of Transportation Administrative Law Judge J.E. Sullivan ruled that FMCSA lacked subject matter jurisdiction to asses fines on two counts, but not on other counts related to falsifying applications for motor carrier authority.
Judge Sullivan did not dismiss the non-disclosure violation, and in fact ultimately approved what's known as "Summary Judgement," leading the way for FMCSA to indeed assess civil penalties. FMCSA did, in fact, fine the family some $125,000 in civil penalties.
Yet FMCSA, in this report to Congress, continues to cite the decision in that case as the reason it cannot enforce the laws on the books. This keeps FMCSA from issuing fines to brokers who violate commercial and civil regulations. Virtually all double brokers, many posting fake addresses, names, or hiding associations with other entities, would fall under this category and face fines, if not for the Riojas decision.
Download the FMCSA's full report to Congress on brokerage enforcement via this link.
Legal experts disagree with FMCSA's interpretation of Riojas. "With due respect, this view seriously understates the Agency’s powers," transportation attorneys Hank Seaton and Mark Andrews wrote in comments to FMCSA.
But FMCSA seems to have a different understanding with Congress. The report says FMCSA previously reported to Congress as part of the 2023 appropriations bill that “the FMCSA does not have the statutory authority to administratively adjudicate and assess civil penalties for violations of Subtitle IV, Part B of title 49, United States Code, and that the FMCSA must seek an adjudication of civil penalties for such violations" in federal district courts.
FMCSA said in the report that it's "developing processes to refer cases to the U.S. Department of Justice (DOJ) for the adjudication of civil penalties and judicial enforcement in the federal district courts for certain violations of commercial regulations that were affected by the Riojas decision, particularly HHG consumer protection violations."
Here, for the first time publicly, FMCSA stresses to Congress it needs more authority and power to stop bad actors.
The need to refer cases to DOJ for the assessment of civil penalties for violations of commercial regulations creates a significant barrier to enforcement, including for unauthorized brokerage violations. Without statutory authority to assess civil penalties administratively for violations of FMCSA’s commercial regulations, FMCSA’s ability to effectively enforce these regulations is significantly limited. Unless a regulated entity that violates FMCSA’s commercial regulations voluntarily resolves its noncompliance, FMCSA must refer cases to DOJ for enforcement of those regulations. The need to refer cases to DOJ complicates and hampers the ability of FMCSA to enforce the Agency’s commercial regulations, including those regarding unauthorized brokerage.
FMCSA said it investigated household goods movers and currently has six brokers with "enforcement cases under review" at the moment.
"FMCSA has increased its public outreach and communication relating to unlawful brokerage," the report stated. "The Agency is planning additional communication efforts to raise awareness of unlawful brokerage activities involving general freight."
[Related: FMCSA's confusing excuse for not enforcing its own rules]
How FMCSA polices bad actors after Riojas
In the report's section headed "Alternative Brokerage Enforcement Mechanisms Available to FMCSA," the agency notes that, before the 2019 Riojas decision, "FMCSA assessed civil penalties for unauthorized brokerage violations via Notices of Claim (NOCs)." Twenty such fines were issued between 2014 and 2019.
Following Riojas, FMCSA said it has two alternatives, Notices of Violation (NOV) and Letters of Probable Violation (LOPV).
FMCSA issues NOVs to non-registered entities "performing brokerage operations without broker operating authority registration to induce compliance," the report said. These NOVs "will state the violations and the corrective actions the broker must take to comply," giving the recipient 30 days to avoid penalties by acknowledge the issue and correcting the problem.
FMCSA may issue an LOPV to a non-compliant broker or non-registered entity performing brokerage operations without broker operating authority "when a civil penalty is deemed fit for Riojas-affected violations," the report said. "An LOPV is an enforcement action that identifies areas of noncompliance and proposes a civil penalty for such non-compliance."
[Related: With registration-overhaul push, does FMCSA have a sole proprietor problem?]
These letters serve as a "valuable tool to encourage brokers and carriers to enter into settlement arrangements to mitigate the identified violations and take corrective actions," the report noted. Recipients of LOPVs also have 30 days to respond. Non-responses or insufficient responses may result in an FMCSA referral to the DOJ.
Apparently, it's almost exclusively through other federal agencies that FMCSA can bear it's teeth. FMCSA stressed that it did cooperate with the DOT's Office of Inspector General (OIG) "and other federal agencies, including the Federal Bureau of Investigation and the Department of Health and Human Services, and state enforcement authorities on several cases and investigations, some leading to indictments and convictions," but that the agency itself was toothless.
"While these collaborations were fruitful," FMCSA said of its work with FBI and OIG, "the Agency recognizes that efforts in this area need to increase given the rapid expansion of fraud and other unlawful activity in the HHG arena and its impact on consumers. FMCSA is actively discussing methods to improve this coordination with DOJ through OIG and DOT’s Office of the General Counsel."
Are double brokers hurting trucking safety? FMCSA weighs in
It's right there in the name. FMCSA sees itself as principally a safety-focused agency. Even with the confusion around the Riojas decision, FMCSA has never meaningfully had its ability to assess penalties for unsafe behavior questioned legally. As such, FMCSA has to consider an important question: Is the double brokering and freight fraud problem, as bad as it may be commercially, actually a safety hazard?
"FMCSA is still assessing the relationship between motor carrier safety and incidence of unlawful brokerage," the report said. "While the Agency has received multiple expressions of concern from stakeholders regarding fraud related to 'double brokering,' it lacks data to quantify or confirm a safety impact."
Broadly, FMCSA "does acknowledge an association between motor carriers with poorer safety performance and carriers that lack a verifiable 'brick and mortar' principal place of business (PPOB)."
[Related: The criminal element lurking in FMCSA's registration system]
Recall that sometimes, hundreds of registered brokers and carriers share a single principal address, phone number or email, and that these have often enough been linked to double brokering scams. Today, carriers report that often legitimate brokers won't even tender a load to a carrier if there are multiple FMCSA-registered entities domiciled at their address. Freight fraud vigilantes look at bad PPOBs as a red flag, and FMCSA has received and reviewed comments to that effect.
Ultimately, "the direct safety impact of failing to register with FMCSA as a broker is unclear," FMCSA said, adding it's "considering additional research into any safety nexus with unlawful brokerage."
In conclusion, FMCSA pleaded with Congress for more clarity and power to stamp out freight fraud.
In light of the recent Supreme Court decision on ending "Chevron deference" -- that is, the precedent of giving federal regulators broad leeway to write regulations as they see fit -- it makes sense that FMCSA would tread lightly and seek clear Congressional authorization to enforce rules.
[Related: Supreme Court deals major blows to federal regulators]
"The Agency believes that revision of its statutes to clearly vest FMCSA with the statutory authority to assess civil penalties administratively for unauthorized brokerage violations is necessary and beneficial," the agency wrote. "Such an action will allow FMCSA to assess civil penalties administratively and in a timely manner, rather than engaging in a lengthy referral process with DOJ."
Fraud complaints, FMCSA added, have gotten worse and more numerous since the pandemic, especially in household goods movement.
"FMCSA’s inability to assess civil penalties administratively not only for unauthorized brokerage, but for these HHG violations as well, has significantly undermined its ability to combat HHG moving and brokering fraud," the report read. "Therefore, if Congress were to amend FMCSA’s statutory authority to authorize administrative assessment of civil penalties for unauthorized brokerage, it would be helpful to include all violations of 49 U.S.C. sections 13101-14916, which include HHG consumer protection violations."
Luckily for Congress, there's already a bill that would do exactly that, backed by the Commercial Vehicle Safety Alliance, the Owner-Operator Independent Drivers Association, the Transportation Intermediaries Association, the National Association of Small Trucking Companies, American Trucking Associations' HHG-focused conference, and the Institute for Safer Trucking.
Download FMCSA's full report on enforcement of unlawful brokerage via this link.
[Related: New bill would let FMCSA fine double brokers $10,000, crack down on shady actors]
