New York Finalizes Regulations to Crack Down on Title Insurance Industry

The New York Department of Financial Services (DFS) has finalized two new regulations to protect New Yorkers and crack down on unscrupulous practices in the title insurance industry.

These regulations, which are the culmination of efforts by DFS to reform the title insurance industry, began after a DFS investigation that revealed that title insurance companies and agents have spent millions of dollars on inducements that the industry has charged back to consumers as marketing costs.

The DFS investigation found improper marketing expenses were being provided to attorneys and real estate agents and others who order title insurance on behalf of their clients, following which DFS commenced significant efforts to reform the industry. These efforts include licensing of title insurance agents and reductions in rates for refinancing transactions.

“These regulations end the widespread practice of using meals and entertainment as inducement for title insurance business,” said Superintendent Maria Vullo in a DFS press release. “New Yorkers can now rest assured that they will know exactly what they are paying for during the closing process and that they will pay only their fair closing costs.”

The first regulation clarifies rules about marketing expenses, including meals and entertainment and ancillary fees that title agents or title insurers may charge the insured at closing. The second regulation requires title insurance companies or agents that generate a portion of their business from affiliates to function separately and independently from any affiliate and be open for business from other sources.

The final regulations, which supersede emergency regulations DFS issued earlier to address questionable title industry practices, do the following:

  • Clarify that the New York anti-inducement statute is not limited to situations in which there is a direct quid pro quo for business, and establish clear guidelines of expenses that are not permitted. The final regulation provides a non-exclusive list of prohibited expenditures as well as a list of permitted expenditures.
  • Require title insurance companies to submit new rate applications to establish rates to be charged in the future that exclude all expenses deemed to be prohibited under this regulation, and thereby reduce the rates charged to consumers.
  • Limit the ancillary fees and expenses that may be charged to consumers for residential closings.
  • 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 require that core title services include the clearance of title exceptions.
  • Clarify that making a good faith effort to obtain, and be open for, title insurance business from all sources and not business only from affiliated persons, includes actively competing in the marketplace.

The new rules adopted by DFS take into consideration comments submitted during the comment period for the proposed regulations published in May 2017, as well as from earlier comment periods.

Source: New York Department of Financial Services

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