Articles of Interest
Stewart unveils simplified, reduced rate structure in California
August 22, 2008
Not only would the proposed legislation establish a licensing system for those wishing to sell title insurance in the state, the California Land Title Association said the bill clarifies what is and is not an allowable marketable practice for the title industry and will increase competition. However, a portion of the proposed regulations by the Department of Insurance could set up unnecessary conflicts and undo the carefully crafted framework the title industry is attempting to erect with the new legislation
While proposed rebate and commission regulations by the California Department of Insurance has raised concerns from the title industry, a bill working its way through the Senate that addresses some of the same issues and aims to eliminate payment of illegal rebates for the referral of title business is gaining support.
Senate Bill 133, which was originally introduced on Jan. 24, 2007 by Sen. Sam Aanestad, would establish procedures for obtaining and renewing a certificate of registration as a title marketing representative, prohibit a person from selling title insurance in California without a valid certificate and place limits on the value of items that title marketing representatives are allowed to provide to those in a position to refer business.
A similar licensing bill, SB 728, was killed in the Senate in 2006. So far, the bill has the support of the California Land Title Association, the California Escrow Association and The First American Corp.
The CLTA calls the SB 133 a “pro consumer bill that will create a registration/licensing program for title marketing representatives employed by title companies.” The CLTA believes the bill will significantly reform how title insurance may be marketed by clarifying what is and is not an allowable marketable practice for the title industry, and will increase competition in the title insurance marketplace.
The CEA said that questions concerning unlawful rebates have existed in the title industry for decades, and that SB 133 is an “important step to resolving these questions and creating a structure for addressing the issues in the future.” The CEA believes the bill will resolve longstanding ambiguities relating to marketing expenses by title companies and establishes a responsible approach to regulating the activities of sales representatives.
First American also offered its support of the measure, as part of its cooperative working relationship with the DOI to explore industry reforms that would improve transparency in the title insurance marketplace.
SB 133 would delete the current provision of law that allows those who sell title insurance to make reasonable expenditures for food, beverages, entertainment, educational programs and promotional items.
The bill instead would:
- Prohibit advertising or paying for the advertising in any newspaper, newsletter, magazine or publication that is produced by, or on behalf of a person, or that results in a direct or indirect subsidy to a person;
- Prohibit expenditures for food, beverages, and entertainment for a person;
- Allow expenditures for promotional items with a permanently affixed company logo of the underwritten title company, title insurer, or controlled escrow company, and with a value of not more than $10 each, but provide that promotional items do not include gift certificates, gift cards, or other items with a specific monetary value on their face or items that may be exchanged for other items having a specific monetary value;
- Allow the furnishing of education or educational materials exclusively related to the business of title insurance for a person, if continuing education credits are not provided;
- Allow other expenditures for a person, as permitted by regulation.
The bill also would prohibit a person from being employed as a title marketing representative unless he or she holds a valid certificate of registration as a title marketing representative issued by the Department of Insurance commissioner for a three-yearperiod. A title marketer who had had his or her license revoked by the DOI would be prohibited from reapplying for another certificate for five years.
If passed, the bill would require title companies to notify the DOI within 30 days of the hiring and/or termination of a title marketing representative. Title companies would also have to train marketing reps on rebates and commissions within 60 days of their hiring.
According to Aanestad, the DOI said the problem of illegal rebates has grown over the years.
“The DOI has documented direct cash payments offered by title marketing representatives to real estate agents and brokers, the establishment of shell companies to launder money that makes its way to real estate agents and brokers, and the hiring of ghost employees by title companies and subsequent payment by the ghost employee of his or her salary to a real estate agent or broker,” the senator said in his comments regarding the proposed bill.
He said the DOI has also found evidence that title marketing representatives paid rent and purchased computers, copiers, and fax machines for real estate agents and brokers, and provided free printing services to agents and brokers.
“Existing law is insufficient to significantly deter illegal rebate activity for at least two reasons,” Aanestad said. “First, existing law provides no mechanism for tracking, registering, licensing, or disciplining title marketing representatives. Instead, title companies are left to police their own employees, something they have traditionally done poorly. Furthermore, although existing law allows DOI to punish title insurers, these punishments have little, if any, impact on the activities of the title insurers' employees.”
He also said that although many types of inducements for the placement or referral of title insurance are illegal, existing law allows title marketing representative to pay "reasonable expenditures" for food, beverages, entertainment, educational programs and promotional items constituting ordinary business expenses. The debate over what constitutes "reasonable" expenditures led to the failure of SB 728, he said.
Aanestad said the bill would resolve the longstanding dispute between the CLTA and DOI over how best to prevent illegal rebate activities.
At least one of the regulations being proposed by the DOI could muddy the waters in that state, if SB 133 passes safely through the state legislature this year. According to industry leaders, the DOI’s 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.
Although the DOI has not issued a formal stance on SB 133, because the proposed legislation gives the DOI more authority to regulate title insurance marketing representatives than the proposed regulations, DOI staff expects to reconfigure the regulations to conform to the bill, if enacted. DOI staff note that these reconfigured regulations would fit into a broader package of proposed regulations to reform the title insurance industry in California.
The DOI held a hearing last week in San Francisco and reviewed comments submitted by the industry regarding the proposed regulation that 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 CLTA expressed concern at last week’s hearing that the regulations will pose a conflict with SB 133.
“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.
