Last year, the Rhode Island General Assembly adopted an act regulating Rhode Island title insurers.
The act, which became effective Jan. 1, is intended to provide for the regulation and supervision of title insurance, title producers and title insurers licensed to write title insurance in the state. Before passage of this legislation, Rhode Island had very minimal statutory provisions concerning title insurance.
The act sets forth a number of definitions, and covers matters such as authorized activities of title insurers and title producers, limitations on powers, minimum capital, surplus and reserve requirements, and the treatment of policyholders. Other provisions require that premium rates and forms be filed, and prohibit title insurers from deviating from those rates and forms.
The law establishes penalties and prohibitions against rebates and fee-splitting, to prohibit title insurers from offering illegal inducements to their title agents to get business.
The act also stipulates that the Commissioner of the Department of Business Regulation or the Attorney General may bring an action to enjoin violations of the federal Real Estate Settlement Procedures Act (RESPA). This is important to note because the Dodd-Frank Act transfers most RESPA enforcement from HUD to the new Consumer Financial Protection Bureau on July 21. A provision in Dodd-Frank imposes civil penalties for violating consumer financial laws (including RESPA). Fines start at $5,000 per day, but for willful violations can be as much as $1 million per day.
This new Rhode Island law, among other things, requires that in any purchase-mortgage transaction when only a loan policy has been ordered, a notice must be given to the buyer in regard to the availability of an owner’s title insurance policy for an additional charge.
This form identifies the property, the amount of owner’s coverage, and the additional cost. The new Rhode Island law requires that the notice and the buyer’s response should be kept in the relevant underwriting file or escrow file for five years. If the buyer refuses to sign the form, annotation should be made on the form that it was tendered and refused and the form retained in the file.
Old Prohibitions
Statutes in Connecticut, Massachusetts, Rhode Island and Vermont also provide for severe penalties when lenders try to “steer” insurance business towards particular insurance underwriters. Violation of these laws has the potential to subject lenders to state insurance department, banking department and attorney general investigations, subpoenas, forfeiture of license, other penalties and restitution orders.
Lenders, title insurance underwriters and agents need to remain focused on compliance in Rhode Island and throughout New England.
With the passage of the new Rhode Island law, and the Dodd-Frank Act, the penalties for non-compliance (and the ability of regulators to ferret out non-compliance) have increased dramatically.
Richard A. Hogan is legislative and regulatory counsel for CATIC in Rocky Hill, Conn. Email: rhogan@caticaccess.com.
