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The Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) regulates and oversees the safety of commercial motor vehicles. This includes more than a half-million commercial trucking companies. As part of its mission, FMCSA licenses freight brokers and freight forwarders. Purchasing a Minnesota freight broker bond, a BMC-84, is a mandatory step in the federal licensing process.
A BMC-84 bond (which gets its name from the form that must be completed) is a licensee’s pledge to pay shippers and carriers in accordance with all contractual and legal requirements. The bond ensures that funds will be available to pay claims for damages filed by shippers and carriers due to nonpayment.
Who Needs Them?
All Minnesota-based freight brokers and freight forwarders applying to FMCSA for licensure for the first time or to renew an expiring license must purchase a $75,000 BMC-84 bond. This is the maximum amount that will be paid out on any single claim.
There must always be a BMC-84 bond in force to prevent suspension or revocation. FMCSA also gives freight brokers and freight forwarders the option of putting cash into a trust or providing an irrevocable letter of credit. However, most choose the surety bond option.
How Do They Work?
A Minnesota freight broker bond is a legally binding contract between three parties:
FMCSA, the party requiring the bond, is the “obligee”
The freight broker or forwarder required to obtain the bond is the “principal”
The bonding company that issues the bond to the principal is the “surety”
Nonpayment of a shipper or carrier can result in a claim against the principal’s Minnesota freight broker bond—a claim that the principal is legally obligated to pay if the surety’s investigation determines that it is valid. However, normal practice is for the surety to pay the claim initially, on behalf of the principal, who must then repay that debt to the surety.
What Do They Cost?
A Minnesota freight broker bond is essentially an unsecured line of credit established for the principal at the time the bond is purchased. In paying a claim on behalf of the principal, the surety draws against that line of credit and then waits to be repaid. Therefore, creditworthiness is the surety’s main concern in setting the premium rate for a given principal.
Someone with a high personal credit score and good financial strength could pay as little as 1% of the $75,000 penal sum as the annual premium for a Minnesota freight broker bond. With lesser credit, the premium rate could be as high as 15%.
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