Escrow protections under the federal truth-in-leasing regulations
As they say, knowledge is power. The best way to leverage your power with motor carriers is to understand the federal truth-in-leasing regulations. They can help you avoid getting into a bad lease or help you decide whether you are being treated fairly by your current carrier.

Special to Land Line from The Cullen Law Firm

The federal truth-in-leasing regulations found in 49 CFR 376 establish specific rules that govern the owner-operator/motor carrier relationship. These rules were enacted in 1979, yet only in 1996 were individual drivers given the right to enforce the requirements of the regulations directly in federal court.

Since Congress granted a private right of action, OOIDA has filed numerous class action lawsuits to develop the law protecting driver rights under these regulations. OOIDA has achieved notable success in these cases regarding the protection of owner-operator funds collected from drivers for various escrow accounts required by the motor carrier through the leasing agreement.

For starters, you should know what the regulations require. The escrow provisions of the leasing regulations are relatively straightforward:

  1. The lease must specify the amount of any escrow fund or performance bond to be established with the owner-operator’s money.
  2. The lease must also identify what specific items or repairs can be paid for with escrow funds. 
  3. The lease must specify how the motor carrier will inform you of every transaction affecting your escrow. Carriers must either clearly indicate on your settlement sheet the amount and description of each escrow deduction or addition or provide a separate monthly accounting of all escrow transactions. 
  4. In addition to this periodic accounting requirement, you can demand an accounting of escrow transactions at any time. If you don’t know what is going on, you should exercise this right in order to keep your carrier honest.
  5. The motor carrier is also required to pay you interest on your escrow funds. To be specific, the interest must be at least equal to the average yield or equivalent coupon issue yield on the 91-day, 13-week Treasury bill as established in the weekly auction by the U.S. Treasury. The current interest rate can usually be found in the business section of your newspaper.
  6. Finally, and perhaps most importantly, the regulations require that the carrier return your escrow funds to you within 45 days from the date the lease is terminated. There are no exceptions to this rule.

Case law has now established a further layer of protection to owner-operators for escrow funds required by motor carriers. The federal Court of Appeals for the Sixth Circuit found that the comprehensive responsibilities contained in the escrow provisions of the regulations places the motor carrier in a position of trust with regard to the handling of owner-operator escrow funds. The requirements of the escrow provisions of the regulations create a statutory trust over the escrows for the benefit of the owner-operator. Owner-operator escrows are trust funds, and the motor carrier is a trustee of those funds while the escrows are under its control.

These findings have much broader meaning than just for the treatment of the escrows by the motor carrier with regard to the drivers under contract. It restricts the use of the escrow funds by the motor carrier. If the motor carrier uses driver trust property for any purpose outside of what is specified in the leasing regulations, the owner-operator can recover his escrow funds from a third party if the motor carrier cannot return his money at the termination of his lease agreement.

In the Comerica case, the Court of Appeals held that Arctic Express’s bank was required to pay back owner-operator maintenance¬† escrows that Arctic Express had used to pay off its debt to Comerica Bank.

Warning signs of wrongful motor carrier escrow practices
An owner-operator who knows his rights can read a lease and determine whether a motor carrier complies with its basic escrow obligations. However, certain provisions may appear to allow the motor carrier to use funds for purposes outside the strict requirements of the regulations.

Other obligations
Some lease agreements will state that your escrow funds can be used to satisfy any “other obligations” you might have to the motor carrier, or that the carrier reserves the right to deduct from your escrow “any other amount you owe to” the motor carrier. However, section 376.12(k)(2) requires the lease to state specifically how the escrow funds can be used. Broad language that does not itemize the purposes of the escrow funds violates the law.

Remember, the escrow obligations not only apply to the regulated carrier with whom you have entered into a regulated service lease, but also apply to closely affiliated companies for whom the carrier deducts escrow funds. A common practice by motor carriers is to deduct lease payments and maintenance funds to cover payments to a related company under a separate equipment lease. The motor carrier cannot do indirectly what the regulations forbid it to do directly. Provisions allowing deductions from compensation on behalf of a related company may well bring the equipment affiliate under the requirements of the leasing regulations.

Upon completion of the lease
A lease provision may state that you are entitled to the return of your escrow funds “upon the completion of the lease.” This, too, is illegal. The regulations clearly state that escrow funds must be returned within 45 days of the date of the lease’s termination. By making the completion of the lease a condition for the return of escrow funds, the motor carrier is imposing an early termination penalty. Both the courts in the Arctic Express and Ledar cases found such early termination penalties to be unlawful under the regulations.

You have already earned the money that goes into your escrow fund. Instead of that money being sent to you in a paycheck, it has been channeled into the escrow. You are entitled to your escrow money, less the deductions properly specified in the lease, whether or not you complete the term of your lease.

Upon return of property
Some leases attempt to condition the return of your escrow funds upon the return of the motor carrier’s property (such as Qualcomm equipment, base plates, identification devices, etc ‚Ķ). The regulations do allow the carrier to withhold your compensation pending the return of its identification devices. Escrow funds are a different matter. The carrier may only deduct charges from escrow that have been specifically itemized in the lease.

Accounting at settlement
Some carriers only promise to give you an escrow accounting at the final settlement. By then, it is usually too late for an owner-operator to identify and fix improper escrow deductions. Under Sections 376.12(k)(3), (4) and (6), the motor carrier is required to account for every deduction made to the escrow fund. You have the right to keep the carrier honest by insisting on an escrow accounting in every settlement sheet or in a separate monthly escrow statement. You may also demand an escrow accounting at any time during the lease. If you request it, the carrier must also provide you with enough information to check the legitimacy of deductions from your escrow.

How these rules can help you
Once you know your rights under the truth-in-leasing regulations, you can protect yourself from questionable practices by the motor carrier. If your lease is missing any of the required escrow terms, or contains one of the warning signs listed above, you can legitimately question whether or not the motor carrier knows its federal obligations. You should always carefully review each settlement sheet or escrow statement to ensure that the carrier is using the funds in your escrow properly. LL