Several states are considering proposals that would create new supervisory entities for the title insurance industry, both in response to highly publicized fraud cases and the desire of the industry to be regulated by government officials who understand the nuances of their business.
As reported by Inman on March 16, lawmakers in Colorado last week introduced Senate Bill 15-210, a measure that would establish a seven-member commission to assist the Division of Insurance commissioner with certain regulatory responsibilities (see “Colorado lawmakers want to create title insurance commission“). Six of the seven members in the proposed commission would be representatives from title insurance underwriters and agencies.
But other states are jumping on the title insurance commission bandwagon this year. Lawmakers in Arkansas and Utah are considering similar proposals, while Vermont representatives are taking baby steps toward the same goal, with a bill pending before the House directing the state insurance commissioner to undertake a study of title insurance and whether additional state regulation would benefit consumers.
Consumer protection is a central theme of the proposals, and since its creation in 2010, the Consumer Financial Protection Bureau has been working closely with states to investigate and prosecute companies that defraud homebuyers and sellers. Consumer protection issues have dogged the title insurance industry for years; the Government Accountability Office (GAO) noted this in its 2007 report on the title industry focusing on multimillion-dollar settlements between several state regulators and title insurers accused of illegal marketing and fraud schemes.
But as critical as the GAO was of the industry, it also cited lax state regulatory efforts and suggested that states do a better job of promoting competition for title insurance consumers.
“Prudent regulators would be well-advised to keep current on title insurance-related issues,” the GAO stated in its report.
In some states, the title industry has even accused insurance regulators of showing favoritism toward some companies. Colorado’s Senate Bill 15-210 aims to “provide the autonomy necessary to avoid potential conflicts of interest between the responsibility of the commission in the regulation of title insurance agents, agencies and companies, and the responsibility of the division in the regulation of lines of insurance other than title insurance.” Utah’s Senate Bill 143 hopes to squash a five-year controversy over whether the existing Title and Escrow Commission has abused its authority by targeting large, out-of-state competitors in investigations and prosecutions.
For its part, the title industry has long complained about being regulated by the same entity that oversees other lines of insurance, like property and casualty, which differ greatly from its business. In most states, insurance companies fall under the jurisdiction of the state insurance department, which issues license and ensures all licensees lawfully conduct insurance business. But title insurance companies differ from other insurance providers in many ways, they argue. For starters, title companies are subject to the same capital and surplus requirements, but also often conduct settlements or closings, as well as handle escrow funds for mortgage payoffs, taxes, closing costs and Realtor commissions. Some of these transactions sometimes involve hundreds of thousands of dollars.
In introducing, Arkansas Senate Bill 172, Sen. Jeremy Hutchinson said the business of ensuring that land claims are valid is a “unique industry” that should have its own commission.
In most cases, the state chapters of the American Land Title Association have been working closely with lawmakers on these efforts, often helping to draft specific language and text in the bills. Most of the trade groups support them. For example, the Arkansas Land Title Association noted on its website that the creation of a title insurance commission “will provide consumer protection by regulating the Arkansas land title industry through commissioners that have an understanding of the unique characteristics of title insurance.”
Other industry players argue that these bills don’t go far enough in ridding the title industry of its ills. Garry Wolff, a 30-year title industry veteran and founder of TI Services LLC, a title insurance consulting and services provider, said he would like to see Colorado address its weak licensing requirements for title companies as well.
“All you need in Colorado is $10,000 in net worth. There is no criminal background check. Even a convicted felon could open a title company,” said Wolff, creator of myTitleIns.com, a website that allows consumers to compare estimated title insurance, closing and ancillary settlement costs in major Colorado markets.
Wolff noted that leadership in the Colorado Division of Insurance changes every year or so, “and the staff has old ways of doing things that can be antiquated.”
At the same time “there is an internal battle going on in the industry,” Wolff said. “We see the industry wanting to go to the consumer directly, but there are other players with a market share who want to protect what they’ve got.”
Still, Wolff said he is optimistic that these measures are a good step in the right direction.
“We have seen that once we get one or two states changing their practices, it will make it easier for other states to see that working and make changes, too,” he said.