The Title Insurance Industry Objections to DFS Regulation 208 (11 NYCRR 228)

TALKING POINTS

Regulation 208 prohibits most sales and marketing practices – such as coffee during a meeting or an introductory lunch - which are legal and customary in other regulated industries.

Regulation 208 gives title companies the option of a costly, technically complex and logistically difficult refiling of six year’s operating expense data or accept a broad 5% reduction in insurance premiums rates.

DFS overstates title industry marketing expenditures based on anecdotal information.  The NPD Analytics Report show title agents spend 2-5% of the their annual budget on marketing. This is well below the 7-8% recommended by the Small Business Administration.

Regulation 208 also seeks to control business activity outside their authority over title insurance by capping fees for non- title services and adding the expense for non-title insurance services performed by closers.

Typical services performed by title agents that are NOT necessary for title insurance:

·         Pick-ups/satisfaction of an existing mortgage - under certain circumstances Regulation 208 forces agents to provide services without compensation

·         Surveys and searches such as bankruptcy, Patriot, municipal departmental – fees are capped below the cost of providing the service

“Connect the dots” - The NPD Analytics report shows a 40.7% decrease in title agent net income if the 5% rate reductions, the loss of compensation for ancillary services and the added cost absorption are in place as a result of Regulation 208.

What can be done?

S6704 - A8467 clarifies insurance law so that the longstanding definition requirement of a quid pro quo requirement of "inducements" is re-established.

S7901- A10207 clarifies that DFS does not have authority to regulate fees for non-insurance services.

Legislation should be introduced to clarify that DFS does not have authority to regulate fees for non-insurance services.

Include these proposals in the state budget to provide immediate relief to at-risk businesses.

The DFS has updated the instructions regarding the cybersecurity notices.

The instructions for replying to a notice have been revised.

Key Questions About the Recent Cyber Regulation Notice

Why did I receive this notice?

All regulated entities and licensed persons of the Department of Financial Services (DFS) were required to file a cybersecurity regulation Certification of Compliance under 23 NYCRR 500 by February 15, 2018.  Our records indicate that to date you have not made such filings under the regulation. Please be aware that if you hold more than one license, then you need to file a separate Certification of Compliance for each license you hold.

What if I am late with my filing?

All Covered Entities that have failed to submit the Certification and that are in compliance with the regulation should do so via the DFS cybersecurity portal as soon as possible.  The DFS Certification of Compliance is a critical governance pillar for the cybersecurity program of DFS regulated entities, and DFS takes compliance with the regulation seriously.  The Department will consider a failure to submit a Certification of Compliance as an indicator that the cybersecurity program of the Covered Entity has a substantive deficiency.

What if I filed for an exemption from the cybersecurity regulations?

People who received the reminder are required to file the Certificate of Compliance even if you filed for an exemption under 23 NYCRR Part 500.19. These exemptions have been tailored to address particular circumstances and include requirements that the Department believes are necessary for exempted entities. Covered Entities are required to file a Certificate of Compliance to confirm that they are in compliance with those provisions of the regulation that apply to the Covered Entity.

I have a receipt showing I filed already?

Please look at the receipt.  If the receipt number you received begins with an “E” then it is a receipt for filing a Notice of Exemption and not a receipt for filing the required Certificate of Compliance.  Your exemption does not excuse the filing noticed below.  The Certification of Compliance is to cover the period as of December 31, 2017 for all requirements of the cybersecurity regulation in force by that date.  If the receipt number starts with a “C” email cyberregcomments@dfs.ny.gov with your name, license number and the receipt number from your cybersecurity Certificate of Compliance filing.

When will I receive a reply to my email?

DFS will reply to emails received in the above email box within 30 days.

Does this apply to me?

Section 500.01 (c) defines a Covered Entity for purposes of the Regulation as “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the Banking Law, the Insurance Law or the Financial Services Law.”  You will need to determine the applicability of the regulation to your particular circumstances.

How do a file a Certification of Compliance?

Certifications of Compliance should be filed electronically via the DFS Web Portal https://myportal.dfs.ny.gov/web/cybersecurity/. Please click the big orange box on the right hand corner that says “Cybersecurity Filing”. The Covered Entity will first be prompted to create an account and log in to the DFS Web Portal, then directed to the filing interface. Filings made through the DFS Web Portal are preferred to alternative filing mechanisms because the DFS Web Portal provides a secure reporting tool to facilitate compliance with the filing requirements of 23 NYCRR Part 500.

Dates under New York's Cybersecurity Regulation (23 NYCRR Part 500)

• March 1, 2017 - 23 NYCRR Part 500 becomes effective.
• August 28, 2017 - 180 day transitional period ends. Covered Entities are required to be in compliance with requirements of 23 NYCRR Part 500 unless otherwise specified.
• September 27, 2017 – Initial 30 day period for filing Notices of Exemption under 23 NYCRR 500.19(e) ends. Covered Entities that have determined that they qualify for a limited exemption under 23 NYCRR 500.19(a)-(d) as of August 28, 2017 are required to file a Notice of Exemption on or prior to this date.
• February 15, 2018 - Covered Entities are required to submit the first certification under 23 NYCRR 500.17(b) on or prior to this date.
• March 1, 2018 - One year transitional period ends. Covered Entities are required to be in compliance with the requirements of sections 500.04(b), 500.05, 500.09, 500.12 and 500.14(b) of 23 NYCRR Part 500.
• September 3, 2018 - Eighteen month transitional period ends. Covered Entities are required to be in compliance with the requirements of sections 500.06, 500.08, 500.13, 500.14(a) and 500.15 of 23 NYCRR Part 500.
• March 1, 2019 - Two year transitional period ends. Covered Entities are required to be in compliance with the requirements of 23 NYCRR 500.11.

The following letter was sent to New York Times editor Tom Feyer on February 1, 2018.

In response to:

New York’s Hidden Home Buyer Closing Costs: Luxury Boxes and Mint Mojitos by Shane Goldmacher (1/29/18):

The recent article tells only a portion of the story focusing only on the sensational.

This is really a story of small companies that are now in jeopardy due to the new Department of Financial Services (DFS) regulations. The regulations do much more than just limit marketing activities.

They effectively require the title industry to accept a mandatory five percent rate cut, without industry input or actuarial justification for such a rate cut.

This will be the 4^th cut we have had in 15 years.

They further limit how much title insurance companies can charge for their services. Our members have been very clear about the effect of these regulations: people will lose jobs, businesses will close, and those who remain employed will be forced to take pay cuts and pay more for health insurance. 

In the end, consumers will see less competition, fewer local businesses, higher prices, and potential delays on closings.

We remain committed to working with the DFS to revise the regulations so that they benefit consumers and do not threaten the continued existence of title insurers and agencies throughout the state. However, these drastic regulations will not fix the problems facing consumers, only trigger new ones.

Robert Treuber

Executive Director

New York State Land Title Association

The following was issued via email to NYSLTA Members.

Regulation 208 has introduced complex issues for the title insurance industry.

Within 2 days of the regulation being published, the NYSLTA posted information to assist Members in evaluating how to respond.

NYS Land Title Association Officers and Executive Committee members have worked many hours studying the regulation and discussing it. The NYSLTA engaged a law firm to provide guidance and recently we secured a meeting with the Department of Financial Services to discuss concerns.

The issues of Regulation 208 are too complex to be addressed in one document. We have posted on the Member web site a memo concerning Closers and Regulation 208. As our work progresses, we will seek opportunities to communicate on other aspects of the regulatory environment.

Our aim is to help our Membership understand the impact of the Regulation and to provide information that will help members make the necessary business decisions.

We have concluded that efforts to forestall or block Regulation 208 on December 18, 2017 are not likely to be successful. Any changes in Regulation 208 will not occur prior to December 18. Therefore, we are focused on being prepared for the changes of December 18 while at the same time we continue to explore potential remedies.

If you have not already done so - READ THE REGULATIONS. Read the materials posted on the Member web site. Agents should communicate with their Underwriter as the first source of advice.

As always, Members may contact NYSLTA Staff with questions.

Friends:

I have been watching this email chain grow.  There have certainly been some useful insights.  With new people paying attention, some for the first time, there has also been a lot of “rediscovery” of things others have looked at before.  Some of the commentary has been uncomfortable to see, knowing DFS, companies & NYSLTA are seeing it.  However, I think it has provided a representation of the state of closers as we approach next month.  Anxiety.  Frustration.  Fear.

We can all agree, we are facing difficult and challenging times.  DFS has precipitated a looming disaster and we have all been left to try and survive it.  Companies and closers, alike.   If there is any chance for ALL of us to weather this storm it will require ALL of us to bring to bear our very best efforts and ideas.   NYSLTA, underwriters, company owners and their employees, as well as closers are all facing this challenge.  Our problems are different and there are no ideal solutions arising that will fully satisfy everyone.  This regrettable fact has fed anxiety, eroded trust and hampered our universal need to find workable solutions.   There will be a title insurance industry after December 18.   We need to keep that in mind as we all aspire to remain part of it.  We must find ways to work together.

I have spoken to most of the companies for which I close.   This is an existential threat to small companies and the industry is struggling to find workable solutions under the regulations as they are now written.   I get no sense the companies I have spoken to have any interest in preventing closers from being able to make a living.  Many companies are trying to figure out how they will survive, themselves.   This is why I have been exploring solutions that would allow companies and closers to survive.

Until we are presented by companies with the policies and procedures they intend to proceed under beginning December 18, I believe it is premature to consider drastic action.   There are likely to be companies that, after sincere and difficult effort will present policies and procedures under which I (or we) may choose to close under.  I do not think it is prudent or responsible (to ourselves, those who depend upon us financially or to the industry in which we participate) to forego exploring any and all solutions to this crisis before undertaking a refusal to work.   The consequences of such an action are numerous and serious.   I have not seen any thoughtful discussion of these consequences and I believe such a discussion would be necessary before such action is undertaken.   I think our industry deserves that.

I am glad to see numerous closers have chosen to join NYSLTA.   As I have said before, our best opportunities to help shape industry policies that affect closers is to have a seat at the table.  However, if we wish to participate we must do so responsibly.   We must do our best to understand those issues which concern us, so as to make substantive contributions to the process of addressing them.  We must expect that of ourselves if we wish to be taken seriously addressing the issues we take seriously.   There are advantages to being members of NYSLTA.  Those who choose not to join NYSLTA choose not to afford themselves of them.   Those of us who join have undertaken a duty to participate responsibly.

I too, have chosen to contribute to the NYSLTA legal defense fund.  I have no reservations that the Association action will benefit closers.   I recognize we are not the only people adversely affected by the regulations and the ensuing action will challenge the regulations on numerous fronts and in a variety of ways.   I want to do my part.   I hope more closers join us.

These are my personal opinions.  I offer them as my contribution to the discussion.  I do so after serious reflection.   I intend to continue to work toward solutions that will allow us all to continue to make a living in this industry because I expect we will find ourselves operating under these frightful regulations come December 18.   I endeavor to make every word and effort count.  

Respectfully,

Jim Hunter

Independent Title Closer

Member, NYSLTA