The state’s Department of FinancialServices issued final regulations Wednesday aimed at stopping“unscrupulous practices” in the title insurance industry.

One of the finalized regulations clarify the rules aroundmarketing expenses, including meals, entertainment and ancillaryfees that title agents or title insurers may charge a customer atclosing.

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Another regulation finalized by the state agencyrequires title insurance companies and agents that generate aportion of their business from affiliations to function separatelyand independently from any other affiliates. Title insurancecompanies and agents must be able to accept business from othersources as well.

2015 investigation

The regulations were born from a 2015 investigation by thedepartment, which found that title insurance companies, real estateagents and others who order title insurance on behalf of clientsspent millions of dollars on incentives to attorneys and realestate agents that officials charged to consumers as marketingcosts, the DFS said in a press release. The incentives are aviolation of the state’s anti-inducement provision of the state’sinsurance law.

The finalized rules provide a list of prohibitedexpenditures, as well as a list of permitted ones. The prohibitedexpenditures include tickets to sporting events or concerts, gifts,outings or parties. Meals and beverages are prohibited unless they“are without regard to insured status or conditioned directly orindirectly on the referral of title
business, and offered with no expectation of, or obligation imposedupon, to refer, apply for or purchase insurance,” the regulation says.

Additionally, title insurance companies will also have to submitnew rate applications to establish future rates thatexclude all expenses that are prohibited in an effort to reduce therates charged to customers.

The department’s Superintendent Maria Vullo said in a statementthat the regulations “end the widespread practice of using mealsand entertainment as inducement for title insurance business.”

Fair closing costs

“New Yorkers can now rest assured that they will know exactly whatthey are paying for during the closing process and that they willpay only their fair closing costs,” Vullo said.

Robert Treuber, executive vice president of the New York State Land TitleAssociation, which represents the industry, said in a statementto the New York Law Journal that the group provided input to theDFS over the new regulations, but the “end product does not servethe people of New York, despite its good intentions.”

The regulations, he added, will have “major fallout” for thetitle insurance industry and consumers.

“We believe the new regulations will force small, local titleinsurance companies to close, costing jobs and making the marketripe for take-over by multistate conglomerates, thereby reducingthe options available to consumers,” Treuber said.

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He added, “we understand and appreciate what DFS is trying toaccomplish with these regulations, but disagree with the assertionthat there will be any real benefit to consumers. The titleindustry is continuing to study the regulations and looks forwardto engaging the DFS in future discussions regarding some of theelements of the regulations, including its interpretations.”

Guidance to state chartered credit unions

Also this week, the department issued guidance to state chartered credit unionson setting methodology for evaluating the designation of a NewYork state chartered credit union as a low-income credit union,similar to federal credit unions. The guidance is in an effort toexpand financial services to low-income individuals, the DFS saidThursday.

A state chartered credit union must show that a majority of itsmembers make 80% of the average income of all wage earners, ortheir family income falls below 80% of the median U.S. householdincome, or that family or individual income is 80% or less than themedian family or individual income for the metropolitan area inwhich the member resides or in the national metropolitan area,whichever is greater. The credit union then has to providedocumentation that it satisfies the “80% test” to thedepartment.

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Josefa Velasquez is at staff writer for the New York LawJournal. Contact her at [email protected]. Twitter:@j__velasquez.