New York cracks down on title insurers with new rules for kickbacks, fees

Strengthens rules first established in 2015

Building on an effort first launched in 2015, the New York Department of Financial Services announced Tuesday that it is cracking down on “unscrupulous practices” in the title insurance business and establishing new rules surrounding kickbacks and the fees that title insurers charge to customers.

Back in 2015, the NYDFS and the office of New York Gov. Andrew Cuomo announced a set of new “anti-inducement” regulations designed to reign in kickbacks and “other improper expenditures,” such as excessive meal and entertainment expenses given to attorneys, real estate professionals, and others in an attempt to obtain business.

Apparently those rules didn’t go far enough, because the NYDFS announced new rules on Tuesday that supersede any previous regulations involving kickbacks and the like.

The new rules come in the form of two final regulations issued by the NYDFS.

According to the NYDFS, the first final 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 final 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 NYDFS said.

The NYDFS announcement noted that its initial investigation into the matter, which led to the 2015 rules, found that some title insurers in the state were providing meals, entertainment, vacations and gifts to attorneys and real estate professionals in order to secure business, and then passing those costs along to customers.

The new regulations “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 establishes clear guidelines of expenses that are not permitted.”

In fact, the new regulations lay out a lengthy list of the things that title insurers are not allowed to provide to real estate professionals or anyone representing the customer in a real estate deal, including:

  • Entertainment, including tickets to sporting events, concerts, shows or artistic performances
  • Gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value
  • Outings, including vacations, holidays, golf, ski, fishing, and other sport outings, gambling trips, shopping trips, or trips to recreational areas, including country clubs
  • Parties, including cocktail parties and holiday parties, open houses

The new regulations also address several other “questionable title industry practices,” the NYDFS said, including:

  • Requiring 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
  • Limiting the ancillary fees and expenses that may be charged consumers for residential closings
  • Requiring 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

“These regulations end the widespread practice of using meals and entertainment as inducement for title insurance business,” NYDFS Superintendent Maria Vullo said in a statement. “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.”

For a full look at the final rules, click here and here.

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