Market Conduct Reforms
In 2020, the Illinois Land Title Association will renew its efforts to address market conduct concerns in the title industry to help create a level playing field and allow the industry to control its own fate. As the association works toward a final piece of legislation, these online resource pages will continue to be updated to help understand the legislation and related responsibilities or liabilities as a title industry professional.
Legislative History & Background
Market conduct issues in the Illinois title insurance industry were highlighted through legislative hearings in 2016 in response to Chultem v. Ticor Title Insurance Co., 46 N.E.3d (Ill. App. 1st Dist. 2015), as well as escalating fees in the Chicago area, and were the focus of various regulatory actions over the course of 2017 and 2018, with additional cease and desist actions this year (click here for IDFPR title insurance disciplinary actions). At the federal level, the Consumer Financial Protection Bureau hired Bryan Schneider in September 2019 as Associate Director of the Supervision, Enforcement and Fair Lending Division; Mr. Schneider was the head of the Illinois Department of Financial and Professional Regulation from January 2015 to January 2019 during most of this increased state regulatory activity regarding title insurance.
In order to address some of the issues that have been raised by the Illinois General Assembly, the Illinois Department of Financial and Professional Regulation, and members of the title insurance community, the Illinois Land Title Association is proposing a comprehensive package of market conduct reforms that involve:
- Rate regulation through a rating bureau with a file and approve requirement;
- Title agent entity licensing structured to utilize the current registration process; and
- Specific prohibited acts to address improper inducements and referrals.
Additional Background on Illinois Market Conduct Reform Legislation
Numerous stakeholders have been engaged regarding the Illinois Land Title Association market conduct legislation, including underwriter and agent members of the association, Illinois State Bar Association, Chicago Bar Association, Illinois Real Estate Lawyers Association, Illinois Bankers Association, Illinois Community Bankers Association, Illinois Credit Union League, Corporate Fiduciaries Association of Illinois, Illinois Realtors, Real Estate Services Providers Council, and Illinois Department of Financial and Professional Regulation.
Each portion of the proposed legislation is intended be part of a comprehensive package that offers an opportunity for compromise in order to avoid more onerous "corrections" that the Illinois General Assembly, state regulators, and possibly federal regulators may force on the Illinois title industry in the future. As language continues to be reviewed regarding this comprehensive legislation, it is important to consult current state and federal laws, as well as initiatives in other states:
Rate Regulation Considerations
The lack of rate regulation in Illinois was of particular focus during legislative hearings in 2016, and rate transparency has continued to be the focus of various regulatory actions over the course of 2017 and 2018, with additional cease and desist actions this year (click here for IDFPR title insurance disciplinary actions).
The proposed legislation utilizes recommendations proposed by 2018 IDFPR “Guidance” regarding title agent compensation (see pages 4 & 6) as well as IDFPR Bulletin No. 1-05 (July 9, 2005) regarding elements for the “determination of insurability of title” (see page 2). Determinations of insurability are also outlined in the definition section of the Illinois Title Insurance Act, 215 ILCS 155/3(3).
Through research conducted by IDFPR in 2018 for its proposed Guidance, "the typical percentage split in many surrounding states is 80-20, i.e. 80% to the agent and 20% to the underwriter," and "In Illinois, agents receive a portion of the premium, typically splitting 80-20 or 85-15" (see IDFPR Guidance, page 4). In states with a set percentage threshold for title agent policy retainage, Connecticut "prohibits an insurer from paying a title insurance agent more than 60% of the gross policy premium" (see OLR Research Report, July 2008) and Florida has followed state regulator guidance "that agents’ share of the risk premium should remain at no more than 70 percent" (see Florida Office of Insurance Regulation Guidance, July 2006).
From a review of other state rate regulation structures, promulgated rates established through a state agency appear to create a burdensome regulatory structure that dictates rates and risks not having sufficient interaction with the industry, while file and use rate structures risk unchecked market conduct.
Ultimately, rate regulation through the authorization of a rating organization, otherwise referred to as a rating bureau, allows for better interaction between the state and the industry, while ensuring greater compliance. Under the authority and oversight of the Illinois Department of Financial and Professional Regulation (IDFPR), all rates to be charged to parties to a transaction must be filed and approved. This filing may be done by a rating organization on behalf of title insurance companies that subscribe to the organization, or an individual title company can take on the cost of obtaining approval of fees it proposes to use. Beyond the eleven states listed below that authorize rating bureaus for rate filing and approval, numerous states without rating bureau authorization, still have statutory requirements for the filing and approval of rates, which in some states include both title and escrow, see e.g. Colorado agency guidance; see also C.R.S. 10-11-118(2); 10-4-401(3)(b); and 10-4-403.
In creating a statutory framework that authorizes a rating organization, which is encompassed in Section 18.2 of the legislation, it is important to include language that ensures interaction and approval by the state regulator in order to avoid anti-trust issues as much as possible. Numerous other states currently authorize rating organizations, which are noted below along with citations to cases that involved anti-trust issues, links to the authorizing statutes, and links to rating manuals where available:
- Arizona, rating organization authorization continues but certain industry activity led to an anti-trust suit upheld in US v. Title Ins. Rating Bureau of Arizona, 517 F. Supp. 1053 (D. Ariz. 1981)
- Delaware (statute; bulletin; 2013 manual), anti-trust suit denied in McCray v. Fid. Nat'l Title Ins. Co., 682 F.3d 229 (3d Cir. 2012), certiorari denied, McCray v. Fid. Nat'l Title Ins. Co., 568 U.S. 1186, 133 S. Ct. 1242 (2013)
- Indiana (statute; manual pending)
- Louisiana (2015 manual - 2017 amendment & 2018 amendment)
- New Jersey (statute; 2019 manual), anti-trust suit denied in conjunction with McCray v. Fid. Nat'l Title Ins. Co., 682 F.3d 229 (3d Cir. 2012)
- New York (statute; 2018 manual)
- North Carolina (2019 rate information)
- Ohio (statute; 2008 manual), anti-trust suit denied in Katz v. Fidelity National Title Insurance Company, 685 F.3d 588 (6th Cir. 2012)
- Oregon (2018 manual)
- Pennsylvania (statute; 2018 manual), anti-trust suit denied in In re Pa. Title Ins. Antitrust Litig., No. 08cv1202-WY, 2010 U.S. Dist. LEXIS 127098, at *35-40 (E.D. Pa. Nov. 30, 2010), citing Ticor I & II
- Washington (statute; manual pending)
For more information regarding real estate transaction volume and prices in the two proposed zones of Cook, Lake, Dupage, McHenry, Kane, Will Grundy, and Kendall counties in one zone, with the remaining counties in a second zone, see the Illinois Realtors' archived database:
For national surveys and research regarding title insurance, the American Land Title Association and National Association of Insurance Commissioners provide numerous resources as well:
Title Agent Entity Licensing
The Illinois Title Insurance Act currently requires IDFPR to go through a title underwriter to examine the actions of a title insurance agent, 215 ILCS 155/12(b), and also relies on a title agent “registration” application that is submitted by title underwriters, 215 ILCS 155/16.
Title agent regulation through entity licensing and the authorization of more direct examination of title agents allows IDFPR to better assess market conduct while also balancing against burdensome individual licensing requirements that are seen in other states. The entity licensing proposals encompassed in Sections 3, 5, 12, and 16 of the legislation attempt to provide IDFPR a reasonable platform for enforcement, with statutory codification of specific prohibited acts to provide a clearer framework for both title industry actors as well as the state regulator, as explained more below. Additionally, entity licensing as opposed to individual licensing is more consistent with the current entity registration structure in Illinois; entity licensing also does not open title agents to unnecessary qualifications, continuing education, and licensing of lower level staff as is required in other states.
Ultimately, the statutory framework regarding a "title insurance agent" under current law will largely remain in place through Sections 3, 5, 12, and 16 of the Illinois Title Insurance Act, 215 ILCS 155, which is implemented in part through Title 50, Section 8100.1600 of the Illinois Administrative Rules.
Specific Prohibited Acts
In promoting market conduct reforms, current state and federal laws as well as related regulatory guidance form the basis of additions being proposed to Section 21 of the Illinois Title Insurance Act. Nearly all of the proposed additions in the legislation regarding improper inducements and referrals are currently contained in federal law or state regulations, and statutory codification provides a clearer framework for both title industry actors as well as the state regulator:
- Subsection 21(a)(5.1) utilizes language and purpose behind ISBA Ethics Opinion 10-02 (Oct. 2009)
- Subsection 21(a)(5.2) utilizes terminology of RESPA Section 8(b), 12 U.S.C. 2607(b), see also RESPA Regulation X, 12 CFR Part 1024.14, and codifies Illinois Administrative Rule 50 Ill.Adm.Cd. 8100.2402(a) to be applicable to all property transactions under the Act
- Subsections 21(a)(5.3) through (5.24) codify Illinois Administrative Rule provisions 50 Ill.Adm.Cd. 8100.2402(b)(1)-(22) to be applicable to all property transactions under the Act, and Subsection 21(a-1) codifies Illinois Administrative Rule provisions 50 Ill.Adm.Cd. 8100.2402(c)(1)-(4) and 50 Ill.Adm.Cd. 8100.2402(d)(1)-(4) to be applicable to all property transactions under the Act
It is also important to review prior IDFPR Guidance regarding improper discounts (click here) when considering market conduct reform legislation as well as the use of Section 24, 215 ILCS 155/24, regarding improper referrals in its disciplinary actions (click here).
One particular area of focus regarding proposed legislative language has been Section 21(a)(5.1), which utilizes language and purpose behind ISBA Ethics Opinion 10-02 (Oct. 2009). Before passage out of the Senate in April 2019 (i.e. engrossed version), some minor changes were made based on limited feedback, with subsequent language requests from Attorneys' Title Guaranty Fund, Inc. (ATG) and Real Estate Services Providers Council, Inc. (RESPRO) generally representing two sides of the longstanding affiliated business debate. IDFPR's use of Sections 5 and 24, 215 ILCS 155, regarding improper referrals in its disciplinary actions (click here) may also be instructive.
Click here for a more detailed breakdown of 2020 legislative proposals and considerations.
Another area of focus going forward is the interaction between rate regulation and prohibited act provisions regarding the use and payment of entities providing services to title and escrow agents, see Section 18.2(k)(3) & (4) and Section 21(a)(5.8).
Fee arrangements and referrals have actually been at the core of title industry review by all branches of government over the past few years, from Chultem v. Ticor Title Insurance Co., 46 N.E.3d (Ill. App. 1st Dist. 2015), legislative hearings in 2016 in response to the Appellate Court holding, a deadlocked Illinois Supreme Court in 2017, and regulatory actions in 2018 attempting to set fee guidelines and require additional disclosures.