- February 25, 2004
- All Texas Agents and Offices
- Procedural Rule P-53 Rebates and Discounts Prohibited
The Texas Insurance Department has adopted Procedural Rule P-53 regarding rebates and discounts. The statutory basis for the rule is Art. 9.30 of the Texas Insurance Code, which talks about rebates and discounts. The effective date for P-53 is April 1, 2004.
Below is an explanation of the issues covered by P-53:
WHAT TITLE COMPANIES ARE COVERED BY THE P-53?
All title insurance companies, title insurance agents, direct operations and all escrow officers and all of the officers, directors, agents, employees, members of their immediate families of the title companies. All of these people are called Authorized Persons under the rule.
WHO ELSE IS COVERED BY THE RULE?
Producers of title insurance business. This means all real estate brokers and agents; all lenders, mortgage companies and mortgage brokers, all builders and developers, all attorneys and architects and their officers, directors, agent, or member of their immediate family and people who own or control or is owned or control by any of them.
WHO IS THE IMMEDIATE FAMILY OF THE PRODUCER?
The term generally refers to husband and wife, children and brothers and sisters. (See Black's Law Dictionary, 6th Edition).
IS A TITLE INSURANCE AGENT A PRODUCER?
When the title insurance agent is receiving any thing of value from its underwriter,
it is not a Producer.
Comment: A title insurance agent could be a producer if the agent is buying or selling real property. Questions of rebating between a title insurance company and its title insurance agent are handled under division of premium.
WHAT CAN'T THE AUTHORIZED PERSON DO?
They can't, directly or indirectly pay for or subsidize advertising or promotional
materials or activities of a Producer. Directly means from one of the people
in the list above. Indirectly means giving the money to an unrelated third party
for them to pay the producer.
WHAT KINDS OF ACTIVITIES ARE PROHIBITED?
Individually or jointly advertising any particular property or group of properties when the activity subsidizes the business or promotional activity of the Producer.
- Signs advertising a property or group of properties, electronic or hard
copies of advertising media describing, promoting or advertising a property
or group of properties;
- Boxes with materials about the property or group of properties
- Conducting, sponsoring or promoting or paying an part of an event for the producer
- Examples are: open houses, holiday parties, seminars, lectures or receptions or convention events.
Comment: This section of the rule applies to activities such as "Home for Sale" signs, or signs advertising or promoting a subdivision. It also applies to the information boxes placed in from of homes for sale. It also applies to open houses at a particular home or model home for the subdivision as well as events held at a Producer's office. It does not apply to sponsoring an event for the Board of Realtors, Mortgage Bankers or similar group.
- Providing or paying for any advertising medium that subsidizes the business,
products, services or promotional act ivies of the Producer.
- Providing or furnishing prizes, food, beverages, gifts, decorations, entertainment or professional services.
Comment: This section deals with anything that assists the Producer in his business activities. It would include private newsletters, booklets, business cards and stationary, signs for vehicles, flyers, handouts and listing packages.
WHAT ELSE CAN'T AN AUTHORIZED PERSON DO FOR A PRODUCER?
Provide or pay for furnishings, office supplies, electronic or hard copy documents or media, computer hardware or software, telephones or telephone systems, copiers or fax machines, office equipment, vehicles or administrative, management or staff services, rental or office facilities.
Comment: Most of the things in this list have the normal meaning. Administrative, management or staff services would include secretarial services, book keeping or accounting or escrow services, payroll or human resources services, marketing staff and courier or delivery services, audit services and data process or informational services.
WHAT ABOUT COMMERCIAL FREE SPEECH?
Can't I sell listing packages or do printing for my customers? An Authorized Person cannot provide listing packages or do printing for anyone except for themselves. They can produce and distribute promotional and education materials about title insurance, loans, and mortgages, real estate matters generally and laws and legislation provided the name of the Authorized Person is set out prominently on the cover and first page of the materials. The materials may not contain the name or symbol of a Producer.
Comment: This section effectively eliminates the ability of an Authorized Person to jointly advertise with a Producer. It also eliminates the ability of the Authorized Person to do printing for a Producer. The Authorized Person can provide educational matters about the title business and related topics but there can be no co-branding.
CAN I GIVE A FRIEND A GIFT OR CAN I GIVE A CUSTOMER A "THANK YOU" GIFT?
If the person is actually a friend, that is a person with whom you have an outside of business relationship, and you have given them gifts in the past, you can continue to do so. But you can't tie the size of the gift to any amount of business.
WHAT ABOUT THE SO CALLED "BLENDING OF RATES"?
The rule requires that if a transaction involves property in one or more state and at least one property is in Texas, the Authorized Person must charge a rate for the non-Texas property that does not violate the laws of that state and may not discount or reduce the rate in a manner that constitutes a thing of value in Texas.
Comment: Any transaction involving a Texas property requires that the Texas promulgated premium be charged and collected for the value of the Texas property. It is up to the underwriter to follow the rules on setting rates in other states.
HOW DO I PROVE THAT I AM COMPLYING WITH THE RULE?
The rule requires that the Authorized Person keep records in a form that can be audited by the TDI.
Comment: Every expense request or receipt for marketing materials should be marked as to whom the materials were requested or given. You should keep a copy of every piece of written material you provide to a Producer. An underwriter may provide written materials to its agents and the materials can be co-branded. Any gift should be documents as to the value and the person to whom it is given and the date on which it was given.
ARE THERE PENALTIES FOR VIOLATING THE RULE?
Yes. The Department can levy a civil penalty up to $10,000 per violation and for each day of the violation. An Authorized Person can lose their license or certificate of authority for later or repeated violations.
Comment: The Department also can levy a fine up to 3 times the value of the material.
The Commissioner's Order says that the Department will not define the parameters of advertising exceptions or other actions but will use a "common sense policy to direct enforcement actions at substantially significant violations rather than matters of de minimis importance". The Department "urges title agents and title companies to comply with the rule and not to attempt to circumvent it." Exactly what these statements mean we are not certain. However our advice to you must be that if you are asked to do something that would be costly (not de minimis) or which you would not want to justify to the Commissioner, you simply should not do it.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.