New York regulators have proposed two new regulations affecting the title insurance industry.
The first proposed regulation from the New York Department of Financial Services (“DFS”) would clarify the rules about expenses such as meals and entertainment and ancillary fees that title agents or title insurers may charge.
The second proposed DFS regulation would require title insurance companies or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and obtain business from other sources.
The DFS said in a statement that it drafted these proposed regulations following an investigation that revealed that title insurance companies and agents have spent millions of dollars on inducements, which the industry charged back to consumers as “marketing costs.”
DFS investigators reported finding that, under the guise of “marketing expenses,” meals, entertainment, gifts, and vacations have been provided to attorneys and real estate professionals who order title insurance on behalf of their clients in exchange for referring business to the title insurance company or agent.
Since the DFS investigation, the DFS proposed earlier versions of both of these regulations and adopted emergency regulations, currently in effect, to address certain of what the DFS characterized as “questionable practices.” The emergency regulations also address issues relating to the fiduciary duties of agents and brokers, and will be in effect until the final adoption of these regulations, the DFS said. Once final regulations are adopted, the emergency regulations currently in effect will no longer apply.
The proposed regulations would:
- Clarify that the New York anti-inducement statute is not limited to situations in which there is a direct quid pro quo for business.
- Limit the ancillary fees and expenses that may be charged consumers.
- Require a title insurance agent or corporation that accepts business from an affiliated person to:
- Function separately and independently from the affiliate, including being staffed by its own employees;
- Engage in all or substantially all of the core title services with respect to the affiliated business; and
- Make a good faith effort to obtain, and be open for, title insurance business from all sources and not business only from affiliated persons.
“These new protections will help ensure New Yorkers aren't forced to shoulder outrageous and exorbitant expenses while pursuing the American Dream of home ownership,” Governor Andrew M. Cuomo said. “The industry-wide practices uncovered by Department of Financial Services were nothing short of shocking, and these reforms will help ensure perspective homeowners will be charged their fair share of title insurance fees and not a penny more.”
The DFS's superintendent, Maria T. Vullo, said, “For far too long, meals and entertainment have been used as inducement for title insurance business. These practices must stop. DFS will protect consumers from unfair practices in the title insurance industry. Many New Yorkers who buy or refinance a home have been footing the bill without explanation for excessive fees that contribute to high closing costs. This action lets title insurers and agents know that these unscrupulous practices stop now.”
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Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].