Articles of Interest
New Calif. regulations may conflict with proposed regulations
August 19, 2008
At least one of the regulations being proposed in California by the Department of Insurance could muddy the waters in that state, if proposed SB 133 passes safely through the state legislature this year. According to industry leaders, the proposed rebate and commission regulations could set up unnecessary conflicts and undo the carefully crafted framework the title industry is attempting to erect with the new legislation.
At least one of the regulations being proposed in California by the Department of Insurance could muddy the waters in that state, if proposed SB 133 passes safely through the state legislature this year. According to industry leaders, the proposed rebate and commission regulations could set up unnecessary conflicts and undo the carefully crafted framework the title industry is attempting to erect with the new legislation.
The California Department of Insurance held a hearing last week in San Francisco and reviewed comments submitted by the industry regarding REG-2008-0023, which addresses title insurance rebates and commissions, one of four new regulations currently under consideration by the department.
In a statement regarding the rebate and commission regulations, DOI Commissioner Steve Poizner said that although current law prohibits inducements and provides for “reasonable” expenditures for entertainment purposes, the statute does not “set explicit standards for reasonable expenditures that do not constitute an inducement. The proposed regulations fill that gap.”
However, the California Land Title Association expressed concern at last week’s hearing that the regulations will pose a conflict with SB 133, a bill currently under consideration in the California Senate that addresses many of the same issues.
The proposed legislation would provide the DOI with the statutory authority to create a registration for title marketing representatives to help track those individuals with the various regulated entities whose principal function is the marketing of title insurance products. The legislation includes statutory provisions intended to clarify and significantly limit expenditures for certain marketing activities often cited as impediments to effective competition in the title insurance business.
“While not all provisions of SB 133 mirror the proposed regulation, we believe that SB 133’s provisions more effectively provide the desired result of enhanced competition and also expressly create the statutory authority the department needs to develop a registration and certification program for title marketing representatives,” said CLTA Executive Vice President and Counsel Craig Page in his remarks.
Page said that should both the regulations and the legislation be adopted simultaneously, “unneeded confusion and redundancy will occur regarding this area and the responsibilities of licensees will be unclear.”
The CLTA comments called on the department to stop the regulatory process in lieu of the legislation that it believed would be less burdensome.
Price tag concerns
In its proposal, the DOI estimated it would cost over $1 million for the implementation, training and systems development for similar, simultaneously filed regulations, but that the regulation would not have a “substantial adverse economic impact” directly affecting businesses.
CLTA says it is hearing something quite different from its member companies.
“Contrary to the foregoing analysis, the information the CLTA received from affected member companies indicated such implementation costs are likely to be substantial,” Page said in his comments. “In contrast, SB 133 has no implementation costs and is more effective at achieving the stated goals of the Commissioner: clarification of the standards for reasonable expenditures and monitoring of expenditures by title marketing personnel.”
CLTA recommended that the department consider implementing only those provisions which will provide significant assistance in their enforcement efforts to eliminate illegal rebate activities, and are not duplicative of or substantially similar to information currently provided to the Department in separate filings or reports.
Page also questioned how the influx of reports could possibly “result in no cost or savings to any state agency,” opining that the department would have to incur additional costs to review and interpret the new information demanded.
Confusing definitions
Section 2555.6 of the proposed regulation would establish a new definition to create a class of title company employees whose “Notice of Appointment” would be sent to the Department of Insurance. The new definition would be applied to those employees that market, offer, solicit, negotiate or sell title insurance.
According to CLTA, there is currently no authority for creating this new class of employees for purposes of regulation without specific statutory authorization.
“Such lack of adequate statutory authority may also invite unnecessary litigation,” Page suggested. “Section 12404 does not even mention employees, but instead speaks to the direct or indirect payment of compensation or consideration by companies as an inducement for the placement or referral of title business. Even the penalties which may be imposed under the proposed regulation for a violation of the law are penalties to be assessed against title companies and not individuals.”
Page noted that SB 133 does specifically provide such a classification.
“Both current versions of SB 133 and the proposed regulation contain similar definitions of the activities of title companies sought to be prohibited,” Page said, “However, SB 133 seeks to limit the scope of targeted employees (title marketing representatives) to those whose primary duty is to market, offer, solicit, negotiate or sell title insurance.”
In its assisting with the drafting of SB 133, the CLTA said it was careful to separate two very important concepts. First, the standards for and limitations on reasonable expenditures crafted into the legislation have universal application to all title company employees regardless of function. This prohibits the use of non-marketing employees as surrogates for illegal marketing activities to avoid the new stringent monetary restrictions. The proposed regulation similarly restricts the activities of all employees. Second, SB 133 targets those individuals that deal directly with those consumer representatives on both the placement of title insurance business and the fees to be charged, and defines them as “title marketing representatives.”
$25 limit unclear
Both CLTA and LandAmerica commented specifically on the regulation’s proposal to establish a $25 safe harbor limit on expenditures, saying that the $0 standard proposed in SB 133 is superior to any “ambiguous dollar limits,” with a carve out for de minimis expenditures for promotional items and educational materials.
According to Margaret Serrano-Foster, who submitted comments on behalf of LandAmerica, Section 2555.7 defines person in a manner that is confusing, in light of the $25 per person safe harbor.
“We believe it is possible that the department may have intended the $25 safe harbor to apply only to expenditures for the benefit of an individual person, and not for an entity,” she said. “Whether that was the Department’s intent or not, we suggest that the regulation be clarified to impose the $25 safe harbor per individual recipient. Otherwise, if the $25 is applied to a large corporation, it becomes essentially a $0 limit. In addition, clarifying the safe harbor applies per person would alleviate some of the most significant administrative problems with the rule. "
Serrano-Foster said the entity limit would make it difficult to track expenditures to avoid violations within the company.
“For example, if one individual at a title company buys coffee for one person in a Realtor’s office one day, and the next day an individual in another office of the same title company buys coffee for another person in that same realtor’s office, it will be challenging for the second individual to know in time about the first expenditure,” she pointed out.
LandAmerica does not regard a $25 per person limitation, applied on an individual basis, as a perfect solution, but it would be preferable to the current lack of guidance, and it would act as a practical limitation on larger expenditures, she said.
Like CLTA, LandAmerica supports the CLTA suggestion that small promotional items and educational expenditures be carved out from the $25 safe harbor provision.
CLTA and LandAmerica also told the department that the Jan. 1, 2009 implementation date was unworkable, given the extensive work that will be required within the title companies to set up tracking mechanisms to insure compliance.
