“Anti-Inducement” Regulations and Broader Reforms Expected to Cut Title Insurance Closing Costs Up to 20 Percent For New Purchases, Up to 60 Percent For Refinances
Governor Andrew M. Cuomo today announced new regulations to crack down on kickbacks and other improper expenditures (such as excessive meal and entertainment expenses) in the title insurance industry, which a Department of Financial Services investigation uncovered are significantly inflating title insurance premiums for consumers. These new regulations, together with broader reform measures, are expected to reduce title insurance closing costs by up to 20 percent for new home purchases and up to 60 percent for refinancing transactions.
“New Yorkers should not have to foot the bill for outrageous or improper expenses made by title companies just to refinance or close on their home,” Governor Cuomo said. “Our administration will not stand for that kind of abuse in the title insurance industry, and these new regulations will help ensure that New Yorkers are protected from unfair charges and get the most bang for their buck.”
Benjamin M. Lawsky, Superintendent of Financial Services, said, “Our investigation uncovered that title insurance companies paid for lavish meals and entertainment on the dime of consumers, which inflated premiums. These new reforms will help significantly reduce costs for homeowners by trimming the fat and making sure that New Yorkers get what they pay for in the title insurance industry.”
The regulation outlines categories of expenditures which, when provided as an inducement for title insurance business, are improper and violative of the New York Insurance Law. These expenditures include meals, entertainment, vacations and gifts that are provided to attorneys, real estate professionals, and others, who represent consumers and order title insurance on their behalf.
The investigation revealed that these types of expenditures are routinely made by title insurance corporations and agents in an effort to secure title insurance business. These improper expenditures have been included in the calculation of title insurance rates and have saddled New York consumers with excessive title insurance premiums for years. The regulation mandates that these improper expenditures, which violate the anti-inducement provision of the Insurance Law, be eliminated from the rates, thereby resulting in lower title insurance premiums.
The regulation also imposes caps on ancillary charges, which are fees for additional searches and services that are provided in connection with the issuance of a title insurance policy, but not included in the title insurance premium. The investigation further revealed that some title insurers and title insurance agents mark up these searches three and four times their cost and otherwise charge consumers additional excessive fees. The regulation also precludes the payment of gratuities and pick-up fees to closers of real estate transactions, which add hundreds of dollar to consumers’ final closing bills.
In order to ensure continued compliance, the regulation mandates that at least once every three years a filing be made demonstrating that title insurance rates comply with the Insurance Law, and are not excessive, inadequate or discriminatory. The review of these filings is expected to help ensure that title insurance reforms result in lower premiums.
Today’s proposed regulations are part of a series of actions the Department of Financial Services is taking to lower premiums and improve accountability in the title insurance industry. The 2014-15 Enacted Budget provided the Department of Financial Services with the authority to issue licenses to title insurance agents for the first time, just as it licenses all other insurance agents and brokers. Licensing requires agents to meet qualification standards and undergo regular training. The Department of Financial Services will also have the authority to monitor abuse by agents and to revoke licenses accordingly, as well as help root out conflicts of interest that drive up costs for homeowners.
To view a copy of the proposed regulations, which are subject to public comment, please visit here.
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