The New York State Department of Financial Services (DFS) has announced new regulations aimed at reforming various title insurance industry practices, including practices involving title company and agency marketing expenditures and “inducements” (such as meals and entertainment) for the purpose of obtaining title insurance business. The regulations attempt to provide the title industry in New York with “clear” guidelines going forward. We are confirming, but it appears that certain of the new provisions may have already taken place, while others will take effect on December 18.
Linked here is a DFS press release describing the new measures. The new regulations are contained in the press release through two hyperlinks for those of you interested in reading them yourselves.
In a nutshell, the portion of the new regulations that relates to marketing expenditures would seem to prohibit title companies and agencies from paying for or providing the following, subject to certain exceptions (enumerated below):
- meals and beverages unless otherwise authorized [in the exceptions listed below];
- 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;
- providing assistance with business expenses of another person, including but not limited to rent, employee salaries, advertising, furniture, office supplies, telephones, telecommunications, computers and other electronic devices and business equipment, or automobiles, or leasing, renting, operating, or maintaining any of such items, for use by other than a title insurance corporation or title insurance agent;
- use of premises, unless a fair rental fee is charged that is equal to the market value in the premises’ geographical area;
- paying the fees or charges of any professional representing an insured as part of a real estate transaction, such as an attorney, engineer, appraiser, or surveyor, or paying rent or all or any part of the salary or other compensation of any employee or officer of any current or prospective customer; and
- providing or offering to provide non-title services, without a charge that is commensurate with the actual cost thereof.
The foregoing list is not intended to be all-inclusive, yet the list as promulgated is quite broad.
Notwithstanding the above limitations, certain expenses will be permitted so long as they are not conditioned (directly or indirectly) on the referral of title business, are not offered with the expectation of title business, and are “reasonable and customary, and not lavish or excessive.” These would include:
- advertising or marketing in any publication, or media, at market rates;
- advertising and promotional items of a de minimis value that include a permanently affixed logo of a title insurance agent or title insurance corporation;
- promotional or marketing events including complementary food and beverages that are open to and attended by the general public;
- continuing legal education events including complementary food and beverages that are open to any member of the legal profession;
- complementary attendance offered by a title insurance corporation, title insurance agent as a host of a marketing or promotional event, including food and beverages available to all attendees so long as (a) title insurance business is discussed for a substantial portion of the event including a presentation of title insurance products and services, (b) such events are not offered on a regular basis or as a regular occurrence, and (c) at least twenty-five diverse individuals from different organizations not affiliated with the host attend or were, in good faith, invited to attend in person;
- charitable contributions made by negotiable instrument made payable only to the charitable organization in the name of the title insurance corporation or title insurance agent; and
- political contributions.
The regulations leave many unanswered questions, and reaction by the title industry to, and the fallout from these new changes, are still to be seen. For example, what effect do the new regulations have for title companies and agencies doing business in States other than New York? Does the list of proscribed expenditures apply to locales outside of New York State (e.g., a Giants game in New Jersey)? Can title companies still take tables at charitable events in New York, such as the annual Denver Hospital or Lincoln Center dinners, and fill the table with clients, potential clients, and others in the real estate industry (i.e., would the fact that the table falls within the “charitable contribution” exception cover such an activity)? What are the sanctions for violating the new regulations? Etc.