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.

Ole Man Winter not done with us yet!

The March EC meeting is rescheduled to Thursday March 15.

See the CALENDAR & EVENTS tab for details.

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.

NEW YORK STATE DEPARTMENT OF FINANCIAL SERVICES
FOR IMMEDIATE RELEASE, FEBRUARY 8, 2018
CONTACT: Richard Loconte 212-709-1690, public-affairs@dfs.ny.gov
 

Statement by DFS Superintendent Maria T. Vullo Regarding the Payment of Title Closers

DFS has heard reports of title insurance companies and title insurance agents hiring closers and failing to pay them for the services they perform to ensure clean title.  These services are critical to the title insurer who is guaranteeing clean title.  Any defect in title arising from a mistake at the closing could result in a claim under the title insurance policy.  DFS regulations require the title insurer or agent that hires a title closer to pay the closer.  Closers are entitled to be paid fairly in accordance with their services.  Where there is advance notice to the seller of real estate, an independent closer may also be able to charge a pick up fee, but that does not excuse the title insurer or agent that hired them from fairly compensating them for their services for the buyer.  Fair compensation for all work done to effect the transfer of clean title should be paid for by the title insurance company or agent as that is covered by the premium.  Any closer who is not paid as DFS regulations require can file a consumer complaint with DFS.  DFS will investigate any allegation that a licensee is failing to follow any rule, or otherwise cheating title closers or any other persons. 

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Where we stand. Where we are going.

The introduction of regulations 206 and 208 by the Department of Financial Services are having the predicted effect of disrupting the title insurance business in New York. The NYSLTA has been at the forefront of the effort to bring stability back to the entire real estate finance sector.

Here is a status report of our current and planned activities.  You are cautioned that this is a fluid situation and this Association has to adapt to changing circumstances.  We will continue to respond as necessary to advance toward our goal of sustaining a business that provides consumers with a high quality financial product and provides the real estate finance community with stability, security and professionalism.

The Legal Strategy - Article 78

There should be no mistake about one thing: Litigation is a last resort. If we can cure the problems of reg 208 in any other way, we will do so.

Article 78 is a legal process in which a regulated entity or industry can seek relief from the actions of a regulatory body.  NYSLTA has retained Gibson Dunn Crutcher to advise us of our rights and options under the State Administrative Procedures Act (SAPA).

On January 17, 2018, a letter was delivered to DFS Superintendent Maria Vullo, citing the Association’s concerns with regulation 208 and giving notice that if the DFS failed to cure these issues, we may file an Article 78 action.

In the January 17th letter, Gibson Dunn mentions a number of issues. Please note these items are not necessarily the extent of an Article 78 action and as of today, an Article 78 has not yet been filed.

·         The 5% reduction in premiums

·         The spending restrictions on marketing expenditures

·         The restrictions on Closers

·         The price controls on non-title insurance services

The Legislative Strategy

The objective of this strategy is to define limits to DFS authority supported by statute.

Sen. Seward and Assembly Member Cahill introduced companion bills, which restore the legislature’s original definition of 6409d. By negating the DFS’s new assertion that marketing and business entertainment are inducements, the rationale for the 5% rate cut is eliminated and normal business relationship building activity can resume.

The Senate passed the Seward bill on January 18^th.  To become law, the bill must be passed by both Chambers and signed by Governor Cuomo. The Assembly has not yet advanced their version of the bill.

While these developments have not provided relief from regulation 208, they are a clear indication of the legislature’s sentiment to scrutinize the DFS’ actions.

A separate effort is under consideration to draft legislation that will prohibit DFS from attempting to regulate ancillary fees charged by agents and to regulate closers providing non-insurance services.

The Communications Strategy

The DFS has a highly sophisticated media and communications capability.  They have the power to define the title industry in the eyes of the media, the consumer and to some degree, to the Legislature.

At this stage, our communications strategy is focused on the impact of reg 208 that the DFS omits: increased costs to consumer; disruption to a smooth running real estate finance market; loss of jobs; business closures.

All of these unwanted consequences stem from Regulation 208.

It is crucial that you – the title professionals - understand that the harm to our industry is not important to the media or the public.  Our cries of alarm about the consequences to title companies and closers have not produced the support we need to achieve the outcomes we seek.

The focus of our strategy is NOT on the damage to title industry, but on the consequences for consumers and the economy as a result of the damage to title. Read that sentence again. It’s important.

Our message always comes back to how Reg 208 harms the consumers and the economy.

Grassroots lobbying

Plan are in development to activate title professionals in a campaign to personally meet with their state legislators. The goal is to have support in the legislature for statutory measures to address the impact of Regulation 208 and to prevent any further the damage to the economy and consumers.

The Title Action Network is a powerful tool but an in-person meeting with constituents presenting their concerns is something no legislator can ignore.

In a few weeks, we will launch a plan for Members to meet with their Legislators in your local district office.  We will provide materials and guidance. As opportunities arise, we will meet with legislative staff in Albany.