In a most welcome development, last week I attended a meeting at the Thompson Center in downtown Chicago called by the Illinois Department of Financial and Professional Regulation. The topic was IDFPR’s proposed regulatory guidance with respect to premium-sharing practices and update fees. The official document can be found here.
In my opinion, the proposed guidance and regulatory action is long overdue and is a good start in addressing certain questionable practices which have been occurring with greater frequency in recent years.
Several important items emerged from the meeting that I wanted to share with you:
IDFPR feels that premium splits should reflect market concerns. However, no clear definition was offered. I questioned whether premium splits should be considered compensation for work actually performed or reflect division of liability. The Title Act and RESPA require agents to perform “core services,” understood to be: 1) examine title; i.e. determine insurability, 2) clear exceptions, and 3) underwrite title risks.
Contracts between underwriters and their agents may be reviewed by IDFPR to determine if the premium splits reflect the prevailing market. Further, there may be a need to audit actual transactions to confirm the contract terms are carried out according to the agreed split.
IDFPR indicates that certain fees for settlement services should not be paid to nor shared with attorney agents. These include later date fees, chain of title fees, commitment update fees, policy update fees, etc. Paying these fees or sharing them may constitute illegal inducements. Further, unless services are actually performed, sharing or paying these fees to attorney agents may violate RESPA.
It was generally agreed that consumers do not understand the mechanics behind the division of title fees. There is a possibility that the disclosure forms may be revised to create greater transparency.
The question was raised of whether an attorney at the closing who believes certain fees or arrangements are inappropriate has an ethical obligation to report that conduct. The IDFPR officials indicated that they could not opine on the Rules of Professional Conduct, but they welcome reports of bad behavior, and gave assurance that anonymity would be would be protected as much as possible.
On the issue of required reciprocal referrals by several real estate brokerages which operate affiliated title companies, IDFPR is interested in these matters and indicated they may address them at some time, but they wanted to limit the discussion to the issues raised in the proposed guidance.
During the meeting, I made the point that title insurance and the advocacy provided by attorneys for the respective parties are important consumer protections and any guidance issued should take this into account. We should not create disincentives in the market where consumers may opt out of title insurance or forego the advice of legal counsel. Let’s be careful not to throw the baby out with the bath water as has occurred in other parts of the country.
Overall the discussion was candid and open. IDFPR Secretary Bryan A. Schneider referenced shedding light on the issues; this is a positive outcome. If nothing else, the meeting raises awareness and gives us the opportunity to more openly talk about inappropriate behavior in the market.
I applaud the Department for initiating the discussion and raising awareness. Perhaps more clarity will come as more light is cast on proper market conduct.
As always, I welcome your comments and questions, and I assure you that if Prairie Title provides you with support services, nothing will change for you. Our invoicing, billing, and remittance practices are already (and always have been) in line with the proper conduct suggested by the IDFPR guidance document.
I would love to have your thoughts and comments. Please share them below. Let’s start a conversation.