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A Freight Broker’s Guide to Compliance

The day-to-day of a freight broker is filled with tasks, from managing relationships with shippers and carriers to staying knowledgeable about their industry, marketing their business, and more. To ensure integrity, safety, and ethical behavior in businesses, a broker needs to follow compliance regulations carrying out their responsibilities. To become a certified freight broker, your license must be approved by the Federal Motor Carrier Safety Administration. His license holds with its continuing compliance expectations, such as renewing your yearly broker bond and staying updated on new regulation requirements. Here's what the FMCSA has to say about the consequences of violating compliance regulations:

"The FMCSA has authority granted to it by Congress to initiate enforcement actions for violations of Federal statutes and regulations. These can include Notices of Violations, Notices of Claims that could result in penalties starting at $1,100, and suspension or revocation of your broker authority. Egregious violations could result in criminal prosecutions by the U.S. Department of Justice or by State law enforcement authorities. Additionally, your brokerage may be subject to civil court actions while FMCSA enforcement actions or Federal or State criminal prosecutions are in progress."

Keep in mind that there are two types of brokers: freight or property brokers, and household goods brokers. For this article, we will be focusing on regulatory compliance that applies to freight brokers. With that said, below you will find a guide to freight broker compliance to help you navigate this sector of your business.

49 CFR §371.3 - Record Keeping

The law states that brokers must keep a record of each transaction for three years, and that each party involved in the transaction has the right to review these details. The records must include the following information:

  • Cosigner's name & address
  • The originating motor carrier's name, address, and registration or USDOT number
  • Bill of lading or freight bill number
  • The compensation amount received by the broker for their service, and the name of the person who paid
  • Description of any non-brokerage service you performed regarding the shipment, and the amount of compensation paid to you and the name of the person who paid
  • The amount of any freight charges collected by you
  • The date of payment to the motor carrier handling the shipment.

This information can also be compiled in a master list of transactions.

49 CFR §371.7 - Avoid Misrepresentation

The main takeaway of this regulation is that brokers are only authorized to operate under the name they registered their broker authority with. Furthermore, brokers are to avoid misrepresenting themselves in any way as a motor carrier company, and must be clear in all of their advertisements that they are offering broker services. For brokers with websites, your website must display:

  • The name as stated on your broker registration
  • Your MC docket number
  • A statement that you are a broker

49 CFR § 371.9 - Rebating & Compensation

The FMCSA states that a broker shall not charge or receive compensation from a motor carrier for brokerage service in the following situations:

  • The broker owns or has a material beneficial interest in the shipment or
  • The broker is able to exercise control over the shipment because the broker owns the shipper, the shipper owns the broker, or there is common ownership of the two.

In addition, a broker shall not give or offer to give anything of value to any shipper, consignor or consignee (or their officers or employees) except inexpensive advertising items given for promotional purposes.

49 CFR §371.13 - Accounting Requirements

This law simply states that if you are operating other businesses in addition to your brokerage, you must separately maintain your financial accounts. Each business should have its revenues and expenses separate from the other. In case there are shared common expenses between your businesses, your accounting records should show which expenses belong to the brokerage.

49 CFR §371.117 - Cancellation Policy

The FMCSA provides a set of rules for brokers to follow that, if kept properly, should protect your brokerage in disputes with shippers regarding cancellations and deposits.

  • You must PROMINENTLY disclose on your Web site(s), and in agreements with prospective shippers, your policies regarding cancellation, deposits, and refunds.
  • You must retain, for 3 years, records of all cancellation requests by individual shippers and how your brokerage handled those requests.
  • You must keep records of all individual shipper deposit refunds.
  • Your refund records must state that the individual shipper cashed or deposited the refunded money, if the financial institution provides that documentation, or show proof you delivered the refunded money to the individual shipper.

In five simple segments, we've covered the basics of meeting broker compliance! Make sure to follow these regulations to ensure your business is protected and operating properly. Do you have any questions or comments? Visit ZUUM or email us, and make sure to keep reading our blog for more informative posts on logistics and more!