summary of afbas - national association of insurance ... affiliated business arrangement means an...

SUMMARY OF AFFILIATED BUSINESS ARRANGMENTS

(AfBA) TITLE INSURANCE (C) TASK FORCE

© 2015 National Association of Insurance Commissioners Draft : 08/07/2015

Attachment Three

© 2015 National Association of Insurance Commissioners 1 Draft : 08/07/2015

Table of Contents DEFINITIONS ................................................................................................................................ 2

Real Estate Settlement Providers Act (RESPA): ........................................................................ 2

Title Model Laws: ....................................................................................................................... 2

REQUIREMENTS .......................................................................................................................... 2

Real Estate Settlement Providers Act (RESPA): ........................................................................ 2

Title Model Laws: ....................................................................................................................... 3

Section 18. Favored Agent of Title Insurer–Title Insurers Model Act .................................... 3

Section 6. Controlled Business Provisions–Title Insurance Agent Model Act ........................ 3

Section 7. Favored Agent of Title Insurer–Title Insurance Agent Model Act........................ 5

ARGUMENTS FOR ENHANCED DISCLOSURE ...................................................................... 5

ARGUMENTS AGAINST ENHANCED DISCLOSURE ............................................................ 6

STATES WITH ENHANCED REQUIREMENT OF AfBA DISCLOSURE ............................... 6

STATES CONSIDERING ENHANCED REGULATION OF AfBA ........................................... 7

STATE RESPONSES TO SURVEY OF TITLE INSURANCE LAW REGARDING REGULATION OF AfBA .............................................................................................................. 8

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DEFINITIONS

Real Estate Settlement Providers Act (RESPA): An affiliated business arrangement means an arrangement in which a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a provider of settlement services and either of such persons direct or indirectly refers such business to that provider or affirmatively influences the selection of that provider. –12 U.S. Code § 2602

Title Model Laws: Affiliate – a specific person that directly, or indirectly through one or more intermediaries, controls, or is controlled by or is under common control with the person specified.–Title Insurers Model Act

Controlled business – any portion of a title insurance agent’s business written in this state that was referred to it by a producer of title insurance business or by an associate of the producer, where the producer or associate, or both, have a financial interest in the title insurance agent.–Title Insurance Agent Model Act

REQUIREMENTS

Real Estate Settlement Providers Act (RESPA): If a loan originator (or an associate) has either an affiliate relationship or a direct or beneficial ownership interest of more than one percent in a provider of settlement services and the loan originator directly or indirectly refers business to the provider it is an affiliated business arrangement. An affiliated business arrangement is not a violation of Section 8 of RESPA and of 12 CFR 1024.14 of Regulation X if the following conditions are satisfied.

Prior to the referral, the person making each referral has provided to each person whose business is referred an Affiliated Business Arrangement Disclosure Statement (Appendix D of Regulation X). This disclosure shall specify the following:

• The nature of the relationship (explaining the ownership and financial interest) between the provider and the loan originator; and

• The estimated charge or range of charges generally made by such provider.

This disclosure must be provided on a separate piece of paper either at the time of loan application, or with the GFE, or at the time of the referral.

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The loan originator may not require the use of such a provider, with the following exceptions: the institution may require a buyer, borrower, or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the institution to represent its interest. The loan originator may only receive a return on ownership or franchise interest or payment otherwise permitted by RESPA.

Sellers that hold legal title to the property being sold are prohibited from requiring borrowers, either directly or indirectly, as a condition to selling the property, to use a particular title company.

Title Model Laws:

Section 18. Favored Agent of Title Insurer–Title Insurers Model Act A title insurer shall not participate in any transaction in which it knows that a producer or other person required, directly or indirectly, or through any trustee, director, officer, agent, employee or affiliate, as a condition, agreement or understanding to selling or furnishing any other person a loan, or loan extension, credit, sale, property, contract, lease or service, that the other person shall place a title insurance policy of any kind with the title insurer or through a particular title insurance agent.

Section 6. Controlled Business Provisions–Title Insurance Agent Model Act A. Whenever the business to be written constitutes controlled business, prior to commencing the transaction, the title insurance agent shall ensure that its customer has been provided with disclosure of the existence of the controlled business arrangement and a written estimate of the charge or range of charges generally made for the title services provided by the agent.

B. The commissioner may establish rules for use by all title insurance agents in the recording and reporting of the agent’s owners and of the agent’s ownership interests in other persons or businesses and of material transactions between the parties.

C. The commissioner may require each title insurance agent to file on forms prescribed by the commissioner, reports setting forth the names and addresses of those persons, if any, that have a financial interest in the agent and who the agent knows or has reason to believe are producers of title insurance business or associates of producers.

[First Optional Subsection D]

D. Nothing in this act shall be construed as prohibiting controlled business arrangements in the provision of title insurance business so long as:

(1) The title insurance agent or party making a referral constituting controlled business, at or prior to the time of the referral, discloses the arrangement and, in

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connection with the referral, provides the person being referred with a written estimate of the charge or range of charges likely to be assessed and otherwise complies with the disclosure obligations of this section;

(2) The person being referred is not required to use a specified title insurance agent or insurer; and

(3) The only thing of value that is received by the title insurance agent or party making the referral, other than payments otherwise permitted, is a return on an ownership interest. For purposes of this subsection, the terms “required use” and “return on an ownership interest” shall have the meaning accorded to them under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607, as amended and Regulation X, 24 C.F.R. § 3500 et seq.

[Second Optional Subsection D]

[D. (1) A title insurance agent shall not accept an order for or issue a title insurance policy or guarantee or provide services to an applicant for title insurance or receive or retain any money in connection with a title insurance transaction, if:

(a) The title insurance agent knows or has reason to believe that the transaction will constitute controlled business; and

(b) When added to other controlled business written by the title insurance agent during the same calendar year, the aggregate controlled premiums written will exceed twenty percent (20%) of the title insurance agent’s gross premiums written during the preceding calendar year. However, the twenty percent (20%) limitation shall be eighty percent (80%) in the first year after the effective date of this Act, sixty percent (60%) in the second calendar year after the effective date of this Act and forty percent (40%) in the third calendar year after the effective date of this Act.

(2) This provision does not apply if the title insurance agent is also a depository institution, or if the title insurance agent is affiliated with a depository institution.]

[Third Optional Subsection D]

[D. (1) In addition to the requirements of Section 3D, the commissioner shall require the title insurance agent to maintain for the benefit of the title insurer, insured or the depositor, pursuant to terms and conditions to be prescribed by the commissioner, in amounts commensurate with the agent’s average exposure and the volume and nature of its business, a sufficient net worth to ensure the agent’s solvency and commitment to the purpose of being a bona-fide title insurance agent.

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(2) In determining the precise amounts and terms and conditions of the above described requirement, the commissioner may promulgate rules that:

(a) Specify acceptable alternatives to the preceding net worth requirements; and

(b) Exempt certain persons from complying with all or a portion of these requirements by virtue of their actual or expected volume of business (e.g., less than fifty (50) annual transactions or less than $5,000,000 in title insurance policies face value, or other amounts the commissioner may deem appropriate) or by virtue of individual circumstances that show that the requirements would pose an undue hardship on the title insurance agent and that the title insurance agent’s conduct will be bona-fide and its services needed and desirable.

(3) The commissioner shall also require each title insurance agent to perform through its bona-fide employees the core title services listed below in order to receive compensation for the services it renders:

(a) The evaluation of a title search or abstract to determine the insurability of title;

(b) The clearance of underwriting objections; and

(c) Issuing and assuming responsibility for the issuance of the title insurance policy, and where customary, issuance of a title commitment.]

Section 7. Favored Agent of Title Insurer–Title Insurance Agent Model Act A title insurance agent shall not participate in any transaction in which it knows that a producer or other person requires, directly or indirectly, or through a trustee, director, officer, agent, employee or affiliate, as a condition, agreement or understanding to selling or furnishing any other person a loan, or loan extension, credit, sale, property, contract, lease or service, that the other person shall place a title insurance policy of any kind with particular title insurer or through particular title insurance agent.

ARGUMENTS FOR ENHANCED DISCLOSURE 1. The title insurance market has been characterized as one lacking competition. In fact, some argue that the title insurance market is rife with reverse competition in which title insurers and agents view as their customers those entities in a position to refer business, including real estate agents, lenders, developers, attorneys and other players in the real estate transaction.

2. The Consumer Financial Protection Bureau has and continues to take enforcement action against title insurers, title agents and real estate professionals for failure to comply

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with rules regarding affiliated business arrangements and participating in kickback or referral agreements proving that illegal arrangements still exist.

3. Entities may enter into preferred provider relationships steering consumers to use certain title insurers. Such arrangements may not need to be disclosed to the consumer as they do not meet the definition of affiliated business arrangements. An enhanced disclosure could be required in all title transactions regardless of the existence of an affiliated business arrangement.

4. A state disclosure was proposed to the Task Force to alert the consumer of the existence of affiliated business arrangements and their right to shop for title insurance. See Appendix A – Sample disclosure form submitted by consumer representatives

ARGUMENTS AGAINST ENHANCED DISCLOSURE 1. In order to be presented in a timely manner, the disclosure may need to be provided by entities not regulated by the State Department of Insurance (real estate brokers, lenders, home builders, developers, etc.)

2. State disclosure provided by affiliated title insurers/agents may be duplicative of federal law as RESPA requires disclosure to be provided of affiliated businesses. (RESPA disclosure is required of real estate brokers, lenders, home builders and title agents.) – See Appendix B – RESPA Disclosure Form

3. Disclosure must be timed effectively so as not to delay closing. Closing documents must be provided at least three days prior to closing.

4. The State Department of Insurance may need a method and mechanism for maintaining records of AfBA disclosures and the resources to track and investigate insurer’s failure to properly disclose AfBA’s.

5. A common disclosure may not be consistent with state law. State law varies regarding the entities subject to regulation, requirement for and timing of disclosure, and the types of relationships for which disclosure is required.

STATES WITH ENHANCED REQUIREMENT OF AfBA DISCLOSURE 1. Colorado - See Appendix C – Colorado Disclosure Form

A disclosure form must be submitted to the Colorado Division of Insurance by title agencies who are party to an affiliated business arrangement. The disclosure is required at the time of renewal, reinstatement, new licensure or change in affiliation and is available

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to the public via open records request. Additionally, AfBAs must be disclosed when title commitments are issued.

2. Nebraska - See Appendix D – Nebraska Disclosure Form

Title insurers must file a Financial Disclosure Statement with the Nebraska Department of Insurance each time there is a change in the insurer’s financial interest. The form sets forth the names and addresses of those persons, if any, that have a financial interest in the title insurance agent and who the title insurance agent knows or has reason to believe are producers of title insurance business or associates of producers of title insurance business.

STATES CONSIDERING ENHANCED REGULATION OF AfBA 1. Florida - See Appendix E – Florida rule under consideration

The Florida Department of Financial Services is considering a rule to identify unfair methods of competition and unfair or deceptive acts or practices in the transaction of title insurance. The rule is intended to clarify the existing law, subparagraph 626.9541(1)(h) 3., F.S., which provides that it is an unfair method of competition and unfair or deceptive act or practice prohibited by section 626.9521, F.S., to engage in certain activities related to title insurance.

2. New York - See Appendix F – New York emergency ruling

The New York Department of Financial Services made an emergency ruling to implement a requirement of chapter 57 of 2014 re: title insurance agents and placement of title insurance business. Chapter 57 was enacted to license title insurance agents as well as to address rebating and inducement.

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STATE RESPONSES TO SURVEY OF TITLE INSURANCE LAW REGARDING REGULATION OF AfBA

Does state law limit or restrict the use of affiliated business arrangements? If yes, how? An affiliated business arrangement means an arrangement in which a person who is in a

position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate

relationship with or a direct or beneficial ownership interest of more than one percent in a provider of settlement services and either of such persons directly or indirectly refers such

business to that provider or affirmatively influences the selection of that provider. AK AR No AZ No CA Yes Affiliated business arrangements are required to comply with the

Controlled Business Source law, Insurance Code sections 12396 - 12399, including record keeping and reporting of closed title orders from controlled business sources, an intent to not rely on more than 50% of such from controlled business sources, and active competition in the market place. In addition, companies must also comply with anti-kickback, rebating provisions in Insurance Code section 12404 et seq.

CO Yes Generally, in the same way that RESPA restricts the use of AFBAs.

CT Yes See Conn. Gen. Stat. section 38a-416 disclosure requirements.

DC No DE FL Yes Only to the extent that affiliations may be illegal because entities are

being paid for services they did not provide, or for services the entity is not licensed to receive. (§626.8412, 626.9541, F.S.)

GU No HI IA ID No IN No

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KS Yes No title insurer or title agent may accept an order for title insurance business, issue a title insurance policy, or receive or retain any premium, or charge in connection with any transaction if: (i) The title insurer or title agent knows or has reason to believe that the transaction will constitute controlled business for that title insurer or title agent, and (ii) 70% or more of the closed title orders of that title insurer or title agent during the 12 full calendar months immediately preceding the month in which the transaction takes place is derived from controlled business. The prohibitions contained in this subparagraph shall not apply to transactions involving real estate located in a county that has a population, as shown by the last preceding decennial census, of 10,000 or less.

KY No LA No MA No MD No ME No MI No MO Yes To parties to the transaction and to the Director annually.

MT Yes No license - no commissions

NC Yes NCGS 58-27-5 NE Yes A) The party making the referral discloses the referral at the outset and

provides the customer with an estimate of the charges; and B) No required to use a specified title agent or title insurer; and C) The only thing of value received is a return on the ownership interest.

NH No NJ NM No NV No OK No OR PA No PR No RI Yes R.I. Gen. Laws sections 27-2.6-14 prohibits rebating and fee splitting. SD Yes Insurers. SDCL 58-6-8

TN No TX No UT Yes It is not permitted by statute.

VA No VT WA No

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WI No WV No WY No Is the state insurance department authorized by state law to require disclosure of affiliated

business arrangements? If yes, by whom must they be disclosed? AK AR No AZ No CA No CO Yes The title agent or insurer must disclose. CT DC No DE FL No GU No HI IA ID Yes Idaho Code Title 41, Chapter 39 requires all affiliated business

arrangements be disclosed in writing by the producer of title business and provided to the title agent at the time of the sell and/or purchase contract is entered into.

IN Yes Title agency and insurer KS Yes title insurer's or title agent's chief executive officer or designee KY No LA No MA No MD Yes Licensees of the Maryland Insurance Administration are required to

comply with the federal law regarding disclosure - 12 U.S.C., Section 2607(c)(4), 24 C.F.R. 3500.15, and Appendix D to 24 C.F.R. Part 3500, as applicable, regarding disclosures of affiliated business arrangements, as defined in 12 U.S.C. Section 2602.Licensees of the Maryland Insurance Administration are also required to comply with the Annotated Code of Maryland, Real Property Article, Title 14, Subtitle 1, Section 14-127.

ME No MI No MO Yes To parties to the transaction and to the Director annually.

MT No NC No NE Yes Must be disclosed to the customer at or prior to the time of the referral.

NH No

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NJ NM No NV No OK No OR PA No PR Yes Chapter 40, Insurance Code of PR, Rule 83 of the Rules and

Regulations of the Insurance Code of PR. RI No SD Yes SDCL 58-5A

TN No TX No UT Yes The Title licensee would need to disclose.

VA No VT WA Yes Title agents.

WI No WV Yes This would only be applicable if the holding company stature is

applicable. Generally, closings are regulated as the practice of law in WV.

WY No

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Consumer Alert from the STATE Department of Insurance Title Insurance and Settlement Services

For Consumers Buying, Selling or Refinancing a Home or Land

Read and Sign This Notice Before You Choose Your Title/Closing Agent The first time a professional involved with your purchase, sale or refinance mentions title insurance or closing to you, he or she should give you this notice.

You have the right to shop for and choose your provider of Title Insurance and Settlement Services.

A professional who recommends a title insurer, title agent or closing agent to you may make money to do this. The person making the recommendation must tell you if they will. This is called “an affiliated business arrangement” and you should get a separate notice about it. Beware of statements like these: “If you choose another title agent, your closing may be delayed.” “Everyone charges the same price.” “We will give you a discount on [something else] if you use our title agent.” If you’re told any of these things or if you feel you aren’t being treated fairly, contact the STATE Department of Financial Services and the U.S. Consumer Financial Protection Bureau (CFPB) State CFPB Phone XXX XXX XXXX ZZZ ZZZ ZZZZ E-Mail [email protected] Text XXX XXX XXXX Twitter #xxxxx What You’re Buying: Title Insurance and Settlement Services Include: Title Search – Searching for information about who has the title to the property Examination – Examining the title information for any problems with the title Title Insurance – The title insurer’s promise to pay if there’s a problem with the title Closing – Preparing documents related to the purchase or refinance and arranging for documents to be signed Escrow – Accepting, holding and paying money for the purchase or refinance. In STATE, the title insurance premium covers title search, examination and title insurance. A title agent, title insurer, attorney or other professional may charge a separate fee for closing and escrow. You have the right to shop around for all these services. You can get a buyer’s guide to title insurance at [web site link] Notice Provided By: Date Notice Received By: Date

Appendix AAttachment Three

HUD > Program Offices > Housing > RAMH > RESPA > HUD Affiliated Business Arrangement Disclosure Statement Format

Appendix d to Part 3500 Affiliated Business Disclosure Statement Format To:From:Property:Date:

This is to give you notice that [referring party] has a business relationship with [settlement services providers(s)]. [Describe the nature of the relationship between the referring party and the providers(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit.

[A.] Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOTrequired to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES.

[provider and settlement service] [charge or range of charges]________________________________________________________________________________________________________

[B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction.

[provider and settlement service][charge or range of charges]__________________________________________________________________________________________________________

ACKNOWLEDGMENT

I/we have read this disclosure form, and understand that [referring party] is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral.

.......[signature]

[INSTRUCTIONS TO PREPARER:] [Use paragraph A for referrals other than those by a lender to an attorney, a credit reporting agency, or a real estate appraiser that a lender is requiring a borrower to use to represent the lender's interests in the transaction. Use paragraph B for those referrals to an attorney, credit reporting agency, or real estate appraiser that a lender is requiring a borrower to use to represent the lender's interests in the transaction. When applicable, use both paragraphs. Specific timing rules for delivery of the affiliated business disclosure statement are set forth in 24 CFR 3500.15(b)(1) of Regulation X.] These INSTRUCTIONS TO PREPARERS should not appear on the statement.

[61 FR 58477, Nov 15, 1996]

Page 1 of 1HUD Affiliated Business Arrangement Disclosure Statement Format

4/27/2015https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/ramh/res/resappd

Appendix BAttachment Three

version: February 2015

AFFILIATED BUSINESS ARRANGEMENT DISCLOSURE In accordance with § § 10-2-401 (6) and 10-11-124, C.R.S. this disclosure form must be completed and submitted (a) with every application for a new license if the applicant is a party to an affiliated business arrangement (b) for continuation of an existing license if the licensee is a party to an affiliated business agreement and (c) upon any change to affiliation information including a licensee becoming a party to any affiliated business agreement. Complete a separate form for each Affiliated Business Arrangement (“AFBA”). Individual title producers, agencies and companies must submit this form and disclose the names of all affiliated business arrangements they are a party to at the time of a new license, renewal of license or change of existing license. Note: If you are not a “party” to an AFBA, or are only an employee of an AFBA, you are not required to complete and submit this form.

1) Disclosure Reason Indicate the disclosure reason for submitting this form: New License /Reinstatement License Renewal Change Affiliation Information

2) Name and Address of New License Title Applicant or Title Licensee (Individual or Company) (Name) (Physical Business Street Address) (City) (State) (Postal Code) Indicate your Colorado Insurance Producer License Number, SSN, or FEIN.

3) Underwriter Disclosure List the Underwriter(s) with whom you are currently contracted to conduct business. Indicate if you are disclosing a new affiliation or ending an affiliation or disclosing a current affiliation with an underwriter. Enter the effective date. (If needed, please provide an addendum disclosing additional underwriters.) Add End Current Effective Date___-___-___ (Underwriter’s Name) Add End Current Effective Date___-___-___ (Underwriter’s Name) Add End Current Effective Date___-___-___ (Underwriter’s Name) Add End Current Effective Date___-___-___ (Underwriter’s Name) Add End Current Effective Date___-___-___ (Underwriter’s Name) 4) Disclosure of Affiliated Business Arrangement Provide the name and physical address of the Affiliated Business. (Name of Affiliated Business) (Physical Business Street Address) (City) (State) (Postal Code) If you are disclosing a new affiliation or ending a previously disclosed affiliation, enter the effective date below. Add Affiliation (Effective Date__-__-__) End Affiliation (Effective Date __-__-__)

Appendix CAttachment Three

version: February 2015

4) Disclosure of Affiliated Business Arrangement (Continued) Yes No Is the Affiliated Business Arrangement with a publicly traded entity? If yes, please complete Section 4 (a). If no, please complete Section 4 (b). Section 4 (a): Please identify publicly traded company name and corporate name: (Company Name) (Corporate Name) (Company Symbol, if applicable) Section 4 (b): Complete the name, occupation, and employer of each owner, director, partner, officer, and/or member of the Affiliated Business. (If needed, please provide an addendum disclosing all directors, partners, officers or members of AFBA) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer) (Name) (Occupation) (Employer)

5) Original Signature (This form must be signed by the individual applicant/licensee. For agency licenses, this form must be signed by a company officer.)

(Print Signature) (Date)

(Signature) (Title if Company Officer)

Appendix CAttachment Three

Appendix DAttachment Three

Appendix EAttachment Three

2015 NY REG TEXT 366829 (NS), 2015 NY REG TEXT 366829 (NS)

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1

2015 NY REG TEXT 366829 (NS)

New York Regulation Text - Netscan11 NYCRR 20, 29, 30, 34, 35

Emergency RulemakingsMarch 11, 2015

Effective: February 20, 2015Insurance Department

Title Insurance Agents, Affiliated Relationships, and Title Insurance Business

To implement requirements of Chapter 57 of Laws of 2014 re: title insurance agents and placement of title insurance business.Department of Financial Services

EMERGENCY RULE MAKING


I.D. No. DFS-29-14-00014-E

Filing No. 122

Filing Date: 2015-02-20

Effective Date: 2015-02-20

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the followingaction:

Action taken: Amendment of Parts 20 (Regulations 9, 18, and 29), 29 (Regulation 87), 30 (Regulation 194) and 34 (Regulation125); and addition of Part 35 (Regulation 206) to Title 11 NYCRR.

Statutory authority: Financial Services Law, sections 202 and 302; and Insurance Law, sections 107(a)(54), 301, 2101(k),2109, 2112, 2113, 2119, 2120, 2122, 2128, 2129, 2132, 2139, 2314 and 6409

Finding of necessity for emergency rule: Preservation of general welfare.

Specific reasons underlying the finding of necessity: Long-sought and critically needed legislation to license title insuranceagents was enacted as part of Chapter 57 of the New York Laws of 2014, which was signed into law by the governor on March31, 2014. Chapter 57 took effect on September 27, 2014.

A number of existing regulations that apply to insurance producers generally are amended to make them applicable to titleinsurance agents. Specifically, Part 20 addresses temporary licenses (Insurance Regulation 9), addresses appointment of

Appendix FAttachment Three



insurance agents (Insurance Regulation 18), and regulates premium accounts and fiduciary responsibilities of insurance agentsand insurance brokers (Insurance Regulation 29), and are amended to include references to title insurance agents. Part 29(Insurance Regulation 87) addresses special prohibitions regarding sharing compensation with other licensees with respect tocertain governmental entities and is amended to address a limited exception for title insurance business insuring State of NewYork Mortgage Agency and certain other circumstances. Part 30 (Insurance Regulation 194) addresses insurance producercompensation transparency and is amended to reflect specific requirements in new Insurance Law section 2113 for title insuranceagents. Part 34 (Insurance Regulation 125) governs insurance agents and brokers that maintain multiple offices and is amendedto clarify the applicability of the regulation to title insurance agents. In addition, a new Part 35 (Insurance Regulation 206) isadded that address unique circumstances regarding title insurance agents.

It is critical for the protection of the public that appropriate rules and regulations are in place on and after the effective date ofChapter 57 to apply to newly-licensed title insurance agents and the title insurance business generated. Although the Departmenthas diligently developed regulations to implement Chapter 57, due to the short time frame, it is necessary to promulgate therules on an emergency basis for the furtherance of the general welfare.

Subject: Title insurance agents, affiliated relationships, and title insurance business.

Purpose: To implement requirements of Chapter 57 of Laws of 2014 re: title insurance agents and placement of title insurancebusiness.

Substance of emergency rule: The following sections are amended:

Section 20.1, which specifies forms for temporary licenses, is amended to make technical changes and to add references totitle insurance agents.

Section 20.2, which specifies forms of notice for termination of agents, is amended to make technical changes and to addreferences to title insurance agents.

Section 20.3, which governs fiduciary responsibility of insurance agents and brokers, including maintenance of premiumaccounts, is amended to make technical changes and to add references to title insurance agents.

Section 20.4, which governs insurance agent and broker recordkeeping requirements for fiduciary accounts, is amended to maketechnical changes and to add references to title insurance agents.

Section 29.5, which implements Insurance Law section 2128, governing placement of insurance business by licensees withgovernmental entities, is amended to make technical changes and to conform to amendments to section 2128, with respect totitle insurance agents.

Section 29.6 is amended to remove language regarding return of disclosure statements.

Section 30.3, which governs notices by insurance producers regarding the amount and extent of their compensation, is amendedby adding a new subdivision that modifies the requirements of the section with respect to title insurance agents, in order toconform to new Insurance Law section 2113(b).

Section 34.2, which governs satellite offices for insurance producers, is amended by adding a new subdivision that exemptsfrom certain provisions of that section a title insurance agent that is a licensed attorney transacting title insurance business fromthe agent's law office.




A new Part 35 is added governing the activities of title insurance agents and the placement of title insurance business. Thenew sections are:

Section 35.1 contains definitions for new Part 35.

Section 35.2 specifies forms for title insurance agent licensing applications.

Section 35.3 specifies change of contact information required to be filed with the Department.

Section 35.4 addresses affiliated business relationships.

Section 35.5 addresses referrals by affiliated persons and the required disclosures in such circumstances.

Section 35.6 addresses minimum disclosure requirements for title insurance corporations and title insurance agents with respectto fees charged by such corporation or agent, including discretionary or ancillary fees.

Section 35.7 provides certain other minimum disclosure requirements.

Section 35.8 governs the use of title closers by title insurance agents and title insurance corporations.

Section 35.9 establishes record retention requirements for title insurance agents.

This notice is intended to serve only as a notice of emergency adoption. This agency intends to adopt the provisions of thisemergency rule as a permanent rule, having previously submitted to the Department of State a notice of proposed rule making,I.D. No. DFS-29-14-00014-P, Issue of July 23, 2014. The emergency rule will expire April 20, 2015.

Text of rule and any required statements and analyses may be obtained from: Paul Zuckerman, New York State Departmentof Financial Services, One State Street, New York, NY 10004, (212) 480-5286, email: [email protected]

Consolidated Regulatory Impact Statement

1. Statutory authority: The Superintendent's authority to promulgate these amendments and the new Part derives from sections202 and 302 of the Financial Services Law ("FSL") and sections 107(a)(54), 301, 2101(k), 2109, 2112, 2113, 2119, 2120, 2122,2128, 2129, 2132, 2139, 2314, and 6409 of the Insurance Law.

FSL section 202 establishes the office of the Superintendent and designates the Superintendent as the head of the Departmentof Financial Services ("Department").

FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to theSuperintendent by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state and toprescribe regulations interpreting the Insurance Law, among other things.

Insurance Law section 107(a)(54) defines title insurance agent.

Insurance Law section 2101(k) defines insurance producer to include title insurance agent.

Insurance Law section 2109 addresses temporary licenses for title insurance agents and other insurance producers.

Insurance Law section 2112 addresses appointments by insurers of insurance agents and title insurance agents.




Insurance Law section 2113 requires that title insurance agents and persons affiliated with such title insurance agents providecertain disclosures to applicants for insurance when referring such applicants to persons with which they are affiliated. Section2113 also requires the Superintendent to promulgate regulations to enforce the affiliated person disclosure requirements and toconsider any relevant disclosures required by the federal real estate settlement procedures act of 1974 ("RESPA"), as amended.

Insurance Law section 2119 permits title insurance agents to charge fees for certain ancillary services not encompassed withinthe rate of premium provided its pursuant to a written memorandum.

Insurance Law section 2120 addresses the fiduciary responsibility of title insurance agents and other producers.

Insurance Law section 2122 addresses advertising by title insurance agents and other insurance producers.

Insurance Law section 2128 prohibits fee sharing with respect to business placed with governmental entities.

Insurance Law section 2132 governs continuing education for title insurance agents and other insurance producers.

Insurance Law section 2139 is the licensing section for title insurance agents.

Insurance Law section 2314 prohibits title insurance corporations and title insurance agents from deviating from filed rates.

Insurance Law section 2324 prohibits rebating, improper inducements and other discriminatory behavior with respect to mostkinds of insurance, including title insurance.

Insurance Law section 6409 contains specific prohibitions against rebating, improper inducements and other discriminatorybehavior with respect to title insurance.

2. Legislative objectives: Long-sought and critically needed legislation to license title insurance agents was enacted as part ofChapter 57 of the New York Laws of 2014, which was signed into law by the governor on March 31, 2014 and took effect onSeptember 27, 2014. By way of background, title insurance agents in New York: (a) handle millions of dollars of borrowers' andsellers' funds, (b) record documents, and (c) pay off mortgages. Yet for years, title insurance agents have conducted businessin New York without licensing or other regulatory oversight, standards or guidelines. Because, as a matter of practice in NewYork, the title insurance agents control the bulk of the title insurance business, including bringing in customers, conductingthe searches and other title work, the title insurance corporations often have little choice but to deal with title insurance agentswho they may otherwise consider questionable or unscrupulous. Without licensing or regulatory oversight, an unscrupuloustitle insurance agent who was fired by one title insurer could simply take the business to another title insurer, who is usuallymore than willing to appoint that title insurance agent.

This lack of State regulation over title insurance agents made for an alarming weakness in New York law, and specifically NewYork law addressing title insurance rebating and inducement. For example, lack of regulatory oversight and licensing createda gaping loophole, which led to serious breaches of fiduciary duties and exploitation by unscrupulous actors to commit fraudin the mortgage origination and financing process. Over the years, this gap in New York law and lack of regulatory oversightallowed these actors to freely engage in theft, abuse, charging of excessive fees, and illegal rebates and inducements to thedetriment of consumers, with little fear of prosecution. These abuses cost consumers of the State millions of dollars and at leastone New York title insurer became insolvent because of the activities of its title insurance agents.

3. Needs and benefits: Now that New York law requires title insurance agents to be licensed, a number of existingregulations governing insurance producers need to be amended in order include title insurance agents or to address uniquecircumstances involving them, including affiliated persons' arrangements and required consumer disclosures. Specifically,




Insurance Regulation 9 addresses temporary licenses; Insurance Regulation 18 addresses appointment of insurance agents;and Insurance Regulation 29 regulates premium accounts and fiduciary responsibilities of insurance agents and insurancebrokers; and each is amended to include references to title insurance agents. Insurance Regulation 87 addresses specialprohibitions regarding sharing compensation with other licensees with respect to certain governmental entities and is amendedto address a limited exception for title insurance business insuring State of New York Mortgage Agency and certain othercircumstances. Insurance Regulation 194 addresses insurance producer compensation transparency and is amended to reflectspecific requirements in new Insurance Law section 2113 for title insurance agents. Insurance Regulation 125 governs insuranceagents and brokers that maintain multiple offices and is amended to clarify the applicability of the regulation to title insuranceagents. Regulation 125 also is amended to address unique circumstances involving title insurance agents who are also licensedattorneys.

New Insurance Regulation 206 addresses a number of miscellaneous issues involving title insurance agents. Some of thesechanges simply add provisions that are similar to those that apply to other insurance producers; for example, it prescribesthe form of applications and requires licensees to notify the Department of any change of business or residence address.Other provisions of Regulation 206 set forth the new disclosure requirements; require title insurance agents to comply with arate service organization's annual statistical data call; and address the obligation of title insurance agents and title insurancecorporations with respect to title closers. Of particular significance are provisions of the regulations that codify Departmentopinions regarding affiliated business relations with respect to the applicability of Insurance Law section 6409, which prohibitsrebates, inducements and certain other discriminatory behaviors.

4. Costs: Regulated parties impacted by these rules are title insurance agents, which heretofore were not licensed by theDepartment, and title insurance corporations. They may need to provide new disclosures in accordance with the regulationif they are not already making such disclosures but they already have an obligation to make changes to notices pursuant tothe legislation. There are also new reporting requirements to the Department but these are the same that apply with respectto other licensees. In any event, the costs of these new disclosures and reporting requirements should not be significant. Theproposed rules also subject title insurance agents to requirements regarding the maintenance of fiduciary accounts that alreadyapply to other insurance producers. The cost impact on title insurance agents will likely vary from agent to agent but shouldnot be significant.

Although the Department already was handling complaints and investigating matters regarding title insurance, because licensingtitle insurance agents is a new responsibility for the Department, anticipated costs to the Department are at this time uncertain.Existing personnel and line titles will handle any new licensing applications or enforcements issues initially.

These rules impose no compliance costs on any state or local governments.

5. Local government mandates: The new rules and amendments impose no new programs, services, duties or responsibilitieson any county, city, town, village, school district, fire district or other special district.

6. Paperwork: The amendments and new rules now apply certain requirements that are applicable to other insurance producersto title insurance agents as well. For example, title insurance agents are made subject to the same reporting requirements asother insurance producers when changing addresses, maintaining records, and submitting applications, and title insurers arerequired to file certificates of appointment of their title insurance agents with the Department. In addition, to reflect the specificnotice requirements of Insurance Law section 2113, the disclosure requirements to insureds under Insurance Regulation 194are modified for title insurance agents to reflect the statutory requirements. The new law also contains certain new disclosurerequirements and the new rules implement those changes, and require certain other disclosures to applicants for insurance, suchas a notice advising insureds or applicants for insurance about the different kinds of title policies available to them.

7. Duplication: The amendments do not duplicate any existing laws or regulations.




8. Alternatives: Prior to proposing rules in the July 23, 2014 issue of the State Register, the Department circulated drafts of theproposed rules to a number of interested parties and, as a result, the Department made a number of changes to proposed newRegulation 206, particularly with respect to affiliated business relationships, and title insurance corporation or title insuranceagent responsibility for title insurance closers. In response to comments received during the public comment period, theDepartment has made a number of changes that are incorporated in the emergency rules that clarify the proposal or eliminatesunnecessary requirements.

The Department received a number of comments regarding the significant and multiple sources of business provisions of theregulation with respect to affiliated business relationships. Because of the critical need to have regulations in effect on and afterthe September 27, 2014 effective date of Chapter 57, the Department is promulgating the emergency regulations utilizing theprovisions contained in the proposed rulemaking, while the Department continues to evaluate and review those comments andconsider whether any changes should be made to those provisions.

9. Federal standards: RESPA, and regulations thereunder, contain certain requirements and disclosures that apply to residentialreal estate settlement transactions. These requirements are minimum requirements and do not preempt state laws that providegreater consumer protection. The amendments and new rules are not inconsistent with RESPA and, consistent with New Yorklaw, provide greater consumer protection to the public.

10. Compliance schedule: Chapter 57 of the New York Laws of 2014 took effect on September 27, 2014. In order to facilitatethe orderly implementation of the new law, the Superintendent was authorized to promulgate regulations in advance of theeffective date, but to make such regulations effective on that date.

Consolidated Regulatory Flexibility Analysis

1. Effect of the rule: These rules affect title insurance corporations authorized to do business in New York State, title insuranceagents and persons affiliated with such corporations and agents.

No title insurance corporation subject to the amendment falls within the definition of "small business" as defined in StateAdministrative Procedure Act section 102(8), because no such insurance corporation is both independently owned and has lessthan one hundred employees.

It is estimated that there are about 1,800 title insurance agents doing business in New York currently. Since they are not currentlylicensed by the Department of Financial Services ("Department"), it is not known how many of them are small businesses, butit is believed that a significant number of them may be small businesses.

Persons affiliated with title insurance agents or title insurance corporations would not, by definition, be independently ownedand would thus not be small businesses.

The rule does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliancerequirements on any local governments.

2. Compliance requirements: The proposed rules conform and implement requirements regarding title insurance agents andplacement of title insurance business with Chapter 57 of the Laws of 2014, which made title insurance agents subject to licensingin New York for the first time. A number of the rules will make title insurance agents subject to the same requirements thatapply to other insurance producers. There are also disclosure requirements unique to title insurance.

3. Professional services: This amendment does not require any person to use any professional services.




4. Compliance costs: Title insurance agents will need to provide new disclosures in accordance with the regulation if they are notalready making such disclosures but they already have an obligation to make changes to notices pursuant to the legislation. Thereare also new reporting requirements to the Department but these are the same that apply with respect to other licensees. In anyevent, the costs of these new disclosures and reporting requirements should not be significant. The proposed rules now subjecttitle insurance agents to requirements regarding the maintenance of fiduciary accounts that already apply to other insuranceproducers. The cost impact on title insurance agents will likely vary from agent to agent but should not be significant.

5. Economic and technological feasibility: Small businesses that may be affected by this amendment should not incur anyeconomic or technological impact as a result of this amendment.

6. Minimizing adverse impact: This rule should have no adverse impact on small businesses.

7. Small business participation: Interested parties, including an organization representing title insurance agents, were given anopportunity to comment on draft proposed rules as well as the proposed rulemaking that was published in the State Registeron July 23, 2014.

Consolidated Rural Area Flexibility Analysis

The Department of Financial Services ("Department") finds that this rule does not impose any additional burden on personslocated in rural areas, and will not have an adverse impact on rural areas. This rule applies uniformly to regulated parties thatdo business in both rural and non-rural areas of New York State.

Rural area participation: Interested parties, including those located in rural areas, were given an opportunity to review andcomment on draft versions of these rules as well as the proposed rulemaking that was published in the State Register on July23, 2014.

Consolidated Job Impact Statement

The Department of Financial Services finds that these rules should have no negative impact on jobs and employmentopportunities. The rules conform to and implement the requirements of, with respect to title insurance agents and the placementof title insurance business, Chapter 57 of the Laws of 2014, which make title insurance agents subject to licensing in New Yorkfor the first time and, by establishing a regulated marketplace, may lead to increased employment opportunity.

Assessment of Public Comment

The consolidated amendments implement Part V of Chapter 57 of the Laws of 2014, which requires title insurance agentsto become licensed in New York. The Department of Financial Services ("Department") published the proposal for theamendments to the rules and the new rule on July 23, 2014. The Department promulgated a revised version, which reflectedsome of the comments that the Department had received, on an emergency basis effective September 27, 2014, and readoptedthe revised version on an emergency basis on December 23, 2014.

The Department received comments from many interested parties in response to its publication of the proposed rule in the NewYork State Register, including from: several New York State legislators; an association representing the title insurance industry("title association"); an association representing New York banks; the real property law section of a state bar association (the"bar"); an association of real estate providers from all segments of the residential home buying and financing industry ("realestate association"); an association of realtors; title insurance corporations; title insurance agents; and a real estate broker.

Section 35.4 of Insurance Regulation 206 - Significant and Multiple Sources of Business




Comments: Section 35.4 of Insurance Regulation 206 generated the most comments. This section provides that a title insurancecorporation may not accept title insurance business referred directly or indirectly from an affiliated person unless the titleinsurance corporation has significant and multiple sources of business, and a title insurance agent may not accept title insurancebusiness referred directly or indirectly from an affiliated person unless the title insurance agent has significant and multiplesources of business.

Most of the commenters objected to the significant and multiple sources requirement. These commenters included bothlegislators; the associations representing realtors, real estate providers, and banks; the bar; an insurer; the real estate broker;and some of the title insurance agents. Their objections fell into the following general categories:

1. the Superintendent lacks the authority to mandate such a requirement;

2. the requirement is inconsistent with the legislative intent in enacting Part V of Chapter 57 and express limits on affiliatedbusiness were rejected during the legislative process;

3. the requirement is inconsistent with the federal Real Estate Settlement Procedures Act of 1974 ("RESPA");

4. the requirement will not benefit consumers;

5. the requirement is inconsistent with sections 6701(d)(1) and (2) and 6701(e) of the federal Gramm-Leach-Bliley Act; and

6. the requirement is vague because there is no definition of the term "significant and multiple sources".

Commenters stated that disclosure to the consumer of the affiliate relationship would be sufficient to protect the public. Theyalso stated that the public would benefit by having additional choices of title insurance agents and that competition would beencouraged. One insurer observed that these businesses may provide ancillary services at a reduced rate.

Some insurers and title insurance agents, and the title association, stated that they support the significant and multiple sourcesrequirement. They expressed concern that a concentration of influence in entities that control real estate development, lending,and insurance would dilute consumer protections. One commenter also noted that large real estate companies used their agentsto promote their title insurance business and pressure local attorneys to use their services, and that such activity by an attorneymay be a breach of an attorney's fiduciary duty of undivided loyalty. One insurer expressed concern that affiliated agents mayhave a conflict of interest in representing both the insured and the title insurance corporation and that those interests are notalways aligned.

The real estate association submitted suggested language that would substitute a "best efforts" requirement under which a titleinsurance corporation or title insurance agent would not be in violation of the section even though it did not have significantand multiple sources of business, provided that it made best efforts to obtain such business.

Response: The significant and multiple sources requirement in section 35.4 is a codification of long-held opinions of thisDepartment interpreting Insurance Law section 6409(d), which is intended to prohibit certain parties involved in the real estatetransaction from receiving compensation as an incentive for referring business or otherwise providing a rebate on the titleinsurance premium. A strict reading of the section could, in fact, preclude any kind of compensation being paid to those partieslisted in the section. However, the Department recognizes that there may be legitimate circumstances where a title insuranceagent may be affiliated with a law firm, lender, or other party addressed by Insurance Law section 6409(d) and that in thesecircumstances, such relationships should not be prohibited per se, but rather be permitted provided that the arrangement is nota sham intended to rebate commission or other compensation or intended to otherwise violate Insurance Law section 6409(d).




The Department does not believe the Department's interpretation of Insurance Law section 6409(d) is inconsistent with Part Vof Chapter 57. While the Legislature made some amendments to section 6409(d), including amending the penalty provisions,the Legislature did not amend the substance of that section. Although previous versions of the bill that eventually became PartV of Chapter 57 originally included a provision modeled after Insurance Law section 2103(i), that restriction applies only withrespect to the amount of insurance business that a licensee may place insuring certain affiliated persons. Insurance Law section6409(d), and by extension, the rule, applies to affiliated persons who are involved in the transaction even though they may notbe insured under the policies.

However, the Department has considered the comments received, and is considering refining and revising the significant andmultiple sources requirement. The Department intends to propose a revised rule shortly and affected parties and the public willhave an opportunity to address any such changes during the public comment period. The Department believes that making anychanges in the emergency regulation with respect to significant and multiple sources of business at this time would only createconfusion and uncertainty in the marketplace until the Department adopts final rules.

Section 20.3 of Insurance Regulation 29 - Premium Accounts

Comment: The title insurance association and title agents raised a concern with the requirements in section 20.3 of InsuranceRegulation 29 governing the types of funds that may be maintained in a "premium account". The rule, which has been in placefor many decades for insurance agents and brokers, discusses premium received from the insured and return premiums, but notother monies that may be received by the licensee in a fiduciary capacity.

Response: While it may appear that those other monies could not be deposited into the premium account, Insurance Lawsection 2120, which is the underlying statute that section 20.3 implements, talks broadly about all funds received or collectedby the licensee in a fiduciary capacity. The Department is considering clarifying and modifying this section as part of a revisedproposal. However, the Department believes that making any changes in the emergency regulation now only would createconfusion and uncertainty in the marketplace until the Department adopts final rules.

Section 20.6 of Insurance Regulations 9, 18, and 29 - Service Fee Agreements

Comment: The title insurance association and title agents also raised a concern regarding service fee agreements under InsuranceLaw section 2119. They assert that section 20.6 of Insurance Regulation 29 appears to require a licensee to obtain a writtenagreement before providing the services that are covered under the agreement. Title insurance agents indicate that is not alwayspractical to obtain the written agreement before providing the services because they typically have no contact with the consumeruntil the closing when the services already have been performed.

Response: The Department is considering clarifying and modifying this section as part of a revised proposal. However, theDepartment believes that making any changes in the emergency rule now only would create confusion and uncertainty in themarketplace until the Department adopts final rules.

Section 35.1 of Insurance Regulation 206 - Definition of "Person"

Comment: The title insurance association suggested that the definition of "person" in section 35.1 of Insurance Regulation 206should include the trustee of a trust and the fiduciary of an estate.

Response: The Department believes that the definition of "person" is broad enough to include a trustee and a fiduciary. Thedefinition references the definition of "person" in Insurance Law section 2101(q), which means an individual or a businessentity. Insurance Law section 2101(p) defines "business entity" to include any kind of legal entity.

Comments on the proposal addressed in the emergency regulation




As noted above, in response to comments received during the public comment period, the emergency rules incorporated anumber of changes that clarified the proposal or eliminated unnecessary requirements. The following are comments that havebeen addressed in the emergency and will be included in the revised proposal:

Section 35.5 of Insurance Regulation 206 - Referral by Affiliated Persons and Required Disclosures

Comment: One comment raised a concern that section 35.5(a)(3) permitted an exception from the requirement that anycompensation to an affiliated person must be based upon that person's financial or other beneficial interest in the title insuranceagent when the affiliated person was licensed as a title insurance agent.

Response: While a title insurance agent generally may share commissions or other compensation regardless of the degree ofwork involved (except as prohibited under Insurance Law section 2128), nonetheless any such sharing is still subject to any otherapplicable law, including, in this case, Insurance Law section 6409(d). Accordingly, the Department removed the exceptionlanguage in the emergency regulation and intends to make the same change in a revised proposal.

Section 35.7 of Insurance Regulation 206 - Other Disclosures to Applicants

Comment: Another comment that the Department addressed in promulgating the emergency regulation involved Section35.7(b). The commenter indicated that the notice requirements regarding obtaining only a lender's title insurance policy shouldnot be necessary on a refinancing application or where the applicant is represented by an attorney and suggested that theDepartment remove the requirements.

Response: The Department made those changes and removed the requirements.

Section 35.8 of Insurance Regulation 206 - Use of Title Closer

Comment: The title insurance association pointed out that in Section 35.8(a) and (b) the wording "engages or uses" appearsin one place, but only the word "used" appears in other places. The title insurance association commented that the wording"engages or uses" and "used" should all be replaced with the wording "selects and engages".

Response: The Department revised subdivision (b) to include the wording "engages or uses" while retaining the word "used"in one place, as was appropriate. The Department believes that "selects and engages" is too narrow and that the broader term"engages or uses" better protects the consumer.

End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.




2015 NY REG TEXT 366829 (NS)

New York Regulation Text - Netscan11 NYCRR 20, 29, 30, 34, 35

Emergency RulemakingsJuly 01, 2015

Effective: June 15, 2015Insurance Department

Insurance Department

To implement requirements of chapter 57 of Laws of 2014 re: title insurance agents and placement of title insurance business.Department of Financial Services

EMERGENCY RULE MAKING


I.D. No. DFS-29-14-00014-E

Filing No. 524

Filing Date: 2015-06-15

Effective Date: 2015-06-15

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the followingaction:

Action taken: Amendment of Part 20 (Regulations 9, 18 and 29), Part 29 (Regulation 87), Part 30 (Regulation 194), Part 34(Regulation 125); addition of Part 35 (Regulation 206) to Title 11 NYCRR.

Statutory authority: Financial Services Law, sections 202 and 302; Insurance Law, sections 107(a)(54), 301, 2101(k), 2109,2112, 2113, 2119, 2120, 2122, 2128, 2129, 2132, 2139, 2314 and 6409

Finding of necessity for emergency rule: Preservation of general welfare.

Specific reasons underlying the finding of necessity: Long-sought and critically needed legislation to license title insuranceagents was enacted as part of Chapter 57 of the New York Laws of 2014, which was signed into law by the governor on March31, 2014. Chapter 57 took effect on September 27, 2014.

A number of existing regulations that apply to insurance producers generally are amended to make them applicable to titleinsurance agents. Specifically, Part 20 addresses temporary licenses (Insurance Regulation 9), addresses appointment of




insurance agents (Insurance Regulation 18), and regulates premium accounts and fiduciary responsibilities of insurance agentsand insurance brokers (Insurance Regulation 29), and are amended to include references to title insurance agents. Part 29(Insurance Regulation 87) addresses special prohibitions regarding sharing compensation with other licensees with respect tocertain governmental entities and is amended to address a limited exception for title insurance business insuring State of NewYork Mortgage Agency and certain other circumstances. Part 30 (Insurance Regulation 194) addresses insurance producercompensation transparency and is amended to reflect specific requirements in new Insurance Law section 2113 for title insuranceagents. Part 34 (Insurance Regulation 125) governs insurance agents and brokers that maintain multiple offices and is amendedto clarify the applicability of the regulation to title insurance agents. In addition, a new Part 35 (Insurance Regulation 206) isadded that address unique circumstances regarding title insurance agents.

It is critical for the protection of the public that appropriate rules and regulations are in place on and after the effective date ofChapter 57 to apply to newly-licensed title insurance agents and the title insurance business generated. Although the Departmenthas diligently developed regulations to implement Chapter 57, due to the short time frame, it is necessary to promulgate therules on an emergency basis for the furtherance of the general welfare.

Subject: Title insurance agents, affiliated relationships, and title insurance business.

Purpose: To implement requirements of chapter 57 of Laws of 2014 re: title insurance agents and placement of title insurancebusiness.

Substance of emergency rule: The following sections are amended:

Section 20.1, which specifies forms for temporary licenses, is amended to make technical changes and to add references totitle insurance agents.

Section 20.2, which specifies forms of notice for termination of agents, is amended to make technical changes and to addreferences to title insurance agents.

Section 20.3, which governs fiduciary responsibility of insurance agents and brokers, including maintenance of premiumaccounts, is amended to make technical changes and to add references to title insurance agents.

Section 20.4, which governs insurance agent and broker recordkeeping requirements for fiduciary accounts, is amended to maketechnical changes and to add references to title insurance agents.

Section 29.5, which implements Insurance Law section 2128, governing placement of insurance business by licensees withgovernmental entities, is amended to make technical changes and to conform to amendments to section 2128, with respect totitle insurance agents.

Section 29.6 is amended to remove language regarding return of disclosure statements.

Section 30.3, which governs notices by insurance producers regarding the amount and extent of their compensation, is amendedby adding a new subdivision that modifies the requirements of the section with respect to title insurance agents, in order toconform to new Insurance Law section 2113(b).

Section 34.2, which governs satellite offices for insurance producers, is amended by adding a new subdivision that exemptsfrom certain provisions of that section a title insurance agent that is a licensed attorney transacting title insurance business fromthe agent's law office.




A new Part 35 is added governing the activities of title insurance agents and the placement of title insurance business. Thenew sections are:

Section 35.1 contains definitions for new Part 35.

Section 35.2 specifies forms for title insurance agent licensing applications.

Section 35.3 specifies change of contact information required to be filed with the Department.

Section 35.4 addresses affiliated business relationships.

Section 35.5 addresses referrals by affiliated persons and the required disclosures in such circumstances.

Section 35.6 addresses minimum disclosure requirements for title insurance corporations and title insurance agents with respectto fees charged by such corporation or agent, including discretionary or ancillary fees.

Section 35.7 provides certain other minimum disclosure requirements.

Section 35.8 governs the use of title closers by title insurance agents and title insurance corporations.

Section 35.9 establishes record retention requirements for title insurance agents.

This notice is intended to serve only as a notice of emergency adoption. This agency intends to adopt the provisions of thisemergency rule as a permanent rule, having previously submitted to the Department of State a notice of proposed rule making,I.D. No. DFS-29-14-00014-P, Issue of July 23, 2014. The emergency rule will expire August 13, 2015.

Text of rule and any required statements and analyses may be obtained from: Paul Zuckerman, New York State Departmentof Financial Services, One State Street, New York, NY 10004, (212) 480-5286, email: [email protected].

Consolidated Regulatory Impact Statement

1. Statutory authority: The Superintendent's authority to promulgate these amendments and the new Part derives from sections202 and 302 of the Financial Services Law ("FSL") and sections 107(a)(54), 301, 2101(k), 2109, 2112, 2113, 2119, 2120, 2122,2128, 2129, 2132, 2139, 2314, and 6409 of the Insurance Law.

FSL section 202 establishes the office of the Superintendent and designates the Superintendent as the head of the Departmentof Financial Services ("Department").

FSL section 302 and Insurance Law section 301 authorize the Superintendent to effectuate any power accorded to theSuperintendent by the Insurance Law, the Banking Law, the Financial Services Law, or any other law of this state and toprescribe regulations interpreting the Insurance Law, among other things.

Insurance Law section 107(a)(54) defines title insurance agent.

Insurance Law section 2101(k) defines insurance producer to include title insurance agent.

Insurance Law section 2109 addresses temporary licenses for title insurance agents and other insurance producers.

Insurance Law section 2112 addresses appointments by insurers of insurance agents and title insurance agents.




Insurance Law section 2113 requires that title insurance agents and persons affiliated with such title insurance agents providecertain disclosures to applicants for insurance when referring such applicants to persons with which they are affiliated. Section2113 also requires the Superintendent to promulgate regulations to enforce the affiliated person disclosure requirements and toconsider any relevant disclosures required by the federal real estate settlement procedures act of 1974 ("RESPA"), as amended.

Insurance Law section 2119 permits title insurance agents to charge fees for certain ancillary services not encompassed withinthe rate of premium provided its pursuant to a written memorandum.

Insurance Law section 2120 addresses the fiduciary responsibility of title insurance agents and other producers.

Insurance Law section 2122 addresses advertising by title insurance agents and other insurance producers.

Insurance Law section 2128 prohibits fee sharing with respect to business placed with governmental entities.

Insurance Law section 2132 governs continuing education for title insurance agents and other insurance producers.

Insurance Law section 2139 is the licensing section for title insurance agents.

Insurance Law section 2314 prohibits title insurance corporations and title insurance agents from deviating from filed rates.

Insurance Law section 2324 prohibits rebating, improper inducements and other discriminatory behavior with respect to mostkinds of insurance, including title insurance.

Insurance Law section 6409 contains specific prohibitions against rebating, improper inducements and other discriminatorybehavior with respect to title insurance.

2. Legislative objectives: Long-sought and critically needed legislation to license title insurance agents was enacted as part ofChapter 57 of the New York Laws of 2014, which was signed into law by the governor on March 31, 2014 and took effect onSeptember 27, 2014. By way of background, title insurance agents in New York: (a) handle millions of dollars of borrowers' andsellers' funds, (b) record documents, and (c) pay off mortgages. Yet for years, title insurance agents have conducted businessin New York without licensing or other regulatory oversight, standards or guidelines. Because, as a matter of practice in NewYork, the title insurance agents control the bulk of the title insurance business, including bringing in customers, conductingthe searches and other title work, the title insurance corporations often have little choice but to deal with title insurance agentswho they may otherwise consider questionable or unscrupulous. Without licensing or regulatory oversight, an unscrupuloustitle insurance agent who was fired by one title insurer could simply take the business to another title insurer, who is usuallymore than willing to appoint that title insurance agent.

This lack of State regulation over title insurance agents made for an alarming weakness in New York law, and specifically NewYork law addressing title insurance rebating and inducement. For example, lack of regulatory oversight and licensing createda gaping loophole, which led to serious breaches of fiduciary duties and exploitation by unscrupulous actors to commit fraudin the mortgage origination and financing process. Over the years, this gap in New York law and lack of regulatory oversightallowed these actors to freely engage in theft, abuse, charging of excessive fees, and illegal rebates and inducements to thedetriment of consumers, with little fear of prosecution. These abuses cost consumers of the State millions of dollars and at leastone New York title insurer became insolvent because of the activities of its title insurance agents.

3. Needs and benefits: Now that New York law requires title insurance agents to be licensed, a number of existingregulations governing insurance producers need to be amended in order include title insurance agents or to address uniquecircumstances involving them, including affiliated persons' arrangements and required consumer disclosures. Specifically,




Insurance Regulation 9 addresses temporary licenses; Insurance Regulation 18 addresses appointment of insurance agents;and Insurance Regulation 29 regulates premium accounts and fiduciary responsibilities of insurance agents and insurancebrokers; and each is amended to include references to title insurance agents. Insurance Regulation 87 addresses specialprohibitions regarding sharing compensation with other licensees with respect to certain governmental entities and is amendedto address a limited exception for title insurance business insuring State of New York Mortgage Agency and certain othercircumstances. Insurance Regulation 194 addresses insurance producer compensation transparency and is amended to reflectspecific requirements in new Insurance Law section 2113 for title insurance agents. Insurance Regulation 125 governs insuranceagents and brokers that maintain multiple offices and is amended to clarify the applicability of the regulation to title insuranceagents. Regulation 125 also is amended to address unique circumstances involving title insurance agents who are also licensedattorneys.

New Insurance Regulation 206 addresses a number of miscellaneous issues involving title insurance agents. Some of thesechanges simply add provisions that are similar to those that apply to other insurance producers; for example, it prescribesthe form of applications and requires licensees to notify the Department of any change of business or residence address.Other provisions of Regulation 206 set forth the new disclosure requirements; require title insurance agents to comply with arate service organization's annual statistical data call; and address the obligation of title insurance agents and title insurancecorporations with respect to title closers. Of particular significance are provisions of the regulations that codify Departmentopinions regarding affiliated business relations with respect to the applicability of Insurance Law section 6409, which prohibitsrebates, inducements and certain other discriminatory behaviors.

4. Costs: Regulated parties impacted by these rules are title insurance agents, which heretofore were not licensed by theDepartment, and title insurance corporations. They may need to provide new disclosures in accordance with the regulationif they are not already making such disclosures but they already have an obligation to make changes to notices pursuant tothe legislation. There are also new reporting requirements to the Department but these are the same that apply with respectto other licensees. In any event, the costs of these new disclosures and reporting requirements should not be significant. Theproposed rules also subject title insurance agents to requirements regarding the maintenance of fiduciary accounts that alreadyapply to other insurance producers. The cost impact on title insurance agents will likely vary from agent to agent but shouldnot be significant.

Although the Department already was handling complaints and investigating matters regarding title insurance, because licensingtitle insurance agents is a new responsibility for the Department, anticipated costs to the Department are at this time uncertain.Existing personnel and line titles will handle any new licensing applications or enforcements issues initially.

These rules impose no compliance costs on any state or local governments.

5. Local government mandates: The new rules and amendments impose no new programs, services, duties or responsibilitieson any county, city, town, village, school district, fire district or other special district.

6. Paperwork: The amendments and new rules now apply certain requirements that are applicable to other insurance producersto title insurance agents as well. For example, title insurance agents are made subject to the same reporting requirements asother insurance producers when changing addresses, maintaining records, and submitting applications, and title insurers arerequired to file certificates of appointment of their title insurance agents with the Department. In addition, to reflect the specificnotice requirements of Insurance Law section 2113, the disclosure requirements to insureds under Insurance Regulation 194are modified for title insurance agents to reflect the statutory requirements. The new law also contains certain new disclosurerequirements and the new rules implement those changes, and require certain other disclosures to applicants for insurance, suchas a notice advising insureds or applicants for insurance about the different kinds of title policies available to them.

7. Duplication: The amendments do not duplicate any existing laws or regulations.




8. Alternatives: Prior to proposing rules in the July 23, 2014 issue of the State Register, the Department circulated drafts of theproposed rules to a number of interested parties and, as a result, the Department made a number of changes to proposed newRegulation 206, particularly with respect to affiliated business relationships, and title insurance corporation or title insuranceagent responsibility for title insurance closers. In response to comments received during the public comment period, theDepartment has made a number of changes that are incorporated in the emergency rules that clarify the proposal or eliminatesunnecessary requirements.

The Department received a number of comments regarding the significant and multiple sources of business provisions of theregulation with respect to affiliated business relationships. Because of the critical need to have regulations in effect on and afterthe September 27, 2014 effective date of Chapter 57, the Department is promulgating the emergency regulations utilizing theprovisions contained in the proposed rulemaking, while the Department continues to evaluate and review those comments andconsider whether any changes should be made to those provisions.

9. Federal standards: RESPA, and regulations thereunder, contain certain requirements and disclosures that apply to residentialreal estate settlement transactions. These requirements are minimum requirements and do not preempt state laws that providegreater consumer protection. The amendments and new rules are not inconsistent with RESPA and, consistent with New Yorklaw, provide greater consumer protection to the public.

10. Compliance schedule: Chapter 57 of the New York Laws of 2014 took effect on September 27, 2014. In order to facilitatethe orderly implementation of the new law, the Superintendent was authorized to promulgate regulations in advance of theeffective date, but to make such regulations effective on that date.

Consolidated Regulatory Flexibility Analysis

1. Effect of the rule: These rules affect title insurance corporations authorized to do business in New York State, title insuranceagents and persons affiliated with such corporations and agents.

No title insurance corporation subject to the amendment falls within the definition of "small business" as defined in StateAdministrative Procedure Act section 102(8), because no such insurance corporation is both independently owned and has lessthan one hundred employees.

It is estimated that there are about 1,800 title insurance agents doing business in New York currently. Since they are not currentlylicensed by the Department of Financial Services ("Department"), it is not known how many of them are small businesses, butit is believed that a significant number of them may be small businesses.

Persons affiliated with title insurance agents or title insurance corporations would not, by definition, be independently ownedand would thus not be small businesses.

The rule does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliancerequirements on any local governments.

2. Compliance requirements: The proposed rules conform and implement requirements regarding title insurance agents andplacement of title insurance business with Chapter 57 of the Laws of 2014, which made title insurance agents subject to licensingin New York for the first time. A number of the rules will make title insurance agents subject to the same requirements thatapply to other insurance producers. There are also disclosure requirements unique to title insurance.

3. Professional services: This amendment does not require any person to use any professional services.




4. Compliance costs: Title insurance agents will need to provide new disclosures in accordance with the regulation if they are notalready making such disclosures but they already have an obligation to make changes to notices pursuant to the legislation. Thereare also new reporting requirements to the Department but these are the same that apply with respect to other licensees. In anyevent, the costs of these new disclosures and reporting requirements should not be significant. The proposed rules now subjecttitle insurance agents to requirements regarding the maintenance of fiduciary accounts that already apply to other insuranceproducers. The cost impact on title insurance agents will likely vary from agent to agent but should not be significant.

5. Economic and technological feasibility: Small businesses that may be affected by this amendment should not incur anyeconomic or technological impact as a result of this amendment.

6. Minimizing adverse impact: This rule should have no adverse impact on small businesses.

7. Small business participation: Interested parties, including an organization representing title insurance agents, were given anopportunity to comment on draft proposed rules as well as the proposed rulemaking that was published in the State Registeron July 23, 2014.

Consolidated Rural Area Flexibility Analysis

The Department of Financial Services ("Department") finds that this rule does not impose any additional burden on personslocated in rural areas, and will not have an adverse impact on rural areas. This rule applies uniformly to regulated parties thatdo business in both rural and non-rural areas of New York State.

Rural area participation: Interested parties, including those located in rural areas, were given an opportunity to review andcomment on draft versions of these rules as well as the proposed rulemaking that was published in the State Register on July23, 2014.

Consolidated Job Impact Statement

The Department of Financial Services finds that these rules should have no negative impact on jobs and employmentopportunities. The rules conform to and implement the requirements of, with respect to title insurance agents and the placementof title insurance business, Chapter 57 of the Laws of 2014, which make title insurance agents subject to licensing in New Yorkfor the first time and, by establishing a regulated marketplace, may lead to increased employment opportunity.

Assessment of Public Comment

The agency received no public comment

End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.


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