Anti Rebate Law Presentation Revised


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Anti Rebate Law Presentation Revised

  1. 1. Foreword to CLTA California Anti-Rebate Law Training Manual <ul><li>This Training Manual is designed to provide members of the California Land Title Association readily accessible material for suggested use in setting forth some of the requirements of the California Insurance Code. Its use is not required by the CLTA nor has the Training Manual been approved by the California Department of Insurance. This Training Manual is solely for the use of California Land Title Association members for informational purposes and cannot be used by anyone for any other purpose whatsoever without express written permission from CLTA. </li></ul><ul><li>The Training Material contains highlights of the basic requirements pertaining to marketing practices and the licensing of title marketing representatives. This training material is no more than a guide.  No guide can anticipate all possible situations, nor can any guide provide irrevocable rules for dealing with questions which may arise.  No guidelines can be written to cover every conceivable situation.  The Manual is not a textbook and is not intended to be relied upon as a statement of the law by the CLTA members or their employees or any other person. </li></ul><ul><li>  </li></ul><ul><li>A CLTA member may make use of conflicting or additional material since this Training Material is merely informational and not intended to be a conclusive statement of the law or any interpretation of specific marketing practices or the views or opinions of the California Department of Insurance. The material of any particular CLTA member may well vary from that of any other member. It is understood by the CLTA and CLTA members that this Training Manual may be revised, edited or supplemented by the CLTA or any CLTA member company based upon additional facts, legal research and advice, review of specific practices, interpretations, guidance, and regulations by the California Department of Insurance, as well as any other factors relevant to compliance with the requirements of the California Insurance Code. </li></ul><ul><li>California Land Title Association makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. </li></ul><ul><li>  </li></ul><ul><li></li></ul>
  2. 2. California Anti-Rebate Law California Land Title Association November, 2008 <ul><li></li></ul>
  3. 3. Overview <ul><li>Reasonable marketing expenditures have traditionally been permitted under both State anti-rebate and Federal (RESPA) law. </li></ul><ul><li>SB 133: </li></ul><ul><ul><li>Dramatically limits permissible expenditures. </li></ul></ul><ul><ul><li>Requires “Title Marketing Representatives” to obtain a “Certificate of Registration”. </li></ul></ul><ul><ul><li>Effective January 1, 2009. </li></ul></ul><ul><li></li></ul>
  4. 4. Title Companies Are Highly Regulated <ul><li>We often market directly to real estate agents, lenders, builders, etc., but we should always remember that consumers ultimately pay for our services. </li></ul><ul><li>A 12404 person should refer the consumer to the best provider based upon pricing and service, not based upon the inducements provided by a title company. </li></ul><ul><li></li></ul>
  5. 5. Basic California Law <ul><li>“ It is unlawful . . . to pay , directly or indirectly, any . . . consideration to any person as an inducement for the placement or referral of title business . Actual placement or referral of title business is not a precondition to a violation . . .” </li></ul><ul><li>“ Title business” specifically includes escrow . </li></ul><ul><li>“ Person” ( aka “12404 Person” ) = Sellers, buyers, borrowers, lenders and agents, attorneys or employees of those persons. </li></ul><ul><li></li></ul>
  6. 6. Basic Federal Law (RESPA) <ul><li>“ No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise , that business incident to . . . a real estate settlement service . . . shall be referred to any person.” </li></ul><ul><li></li></ul>
  7. 7. RESPA v. California <ul><li>RESPA allows “normal promotional and educational activities”. </li></ul><ul><li>RESPA is limited to 1-4 family residential property. </li></ul><ul><li>California law is more restrictive. </li></ul><ul><li>California law also applies to commercial transactions . </li></ul><ul><li>We must comply with the strictest of the laws so, California law controls. </li></ul><ul><li>CA law also requires compliance with rate filings. </li></ul><ul><li></li></ul>
  8. 8. SB 133 <ul><li></li></ul>
  9. 9. SB 133 – Food and Entertainment <ul><li>PROHIBITED: Making expenditures for food, beverages, and entertainment for a 12404 person. </li></ul><ul><li>NOTE: This is a very dramatic change from the former law! </li></ul><ul><li></li></ul>
  10. 10. SB 133 – Food and Entertainment <ul><li>For example: </li></ul><ul><ul><li>Do not pay for a 12404 persons’ green fees or tickets to sporting events. </li></ul></ul><ul><ul><li>Do not provide food or drinks to a 12404 person. </li></ul></ul><ul><ul><li>Ever! </li></ul></ul><ul><li></li></ul>
  11. 11. Bottled Water and “Beverages” <ul><li>Webster’s Dictionary: </li></ul><ul><ul><li>Beverage: A drink of any kind other than water. </li></ul></ul><ul><li>BUT delivering cases of bottled water to a 12404 person would probably constitute providing assistance with his or her business expenses and would most likely be illegal. </li></ul><ul><li></li></ul>
  12. 12. SB 133 – Advertising <ul><li>PROHIBITED: </li></ul><ul><li>Advertising or paying for the advertising in any newspaper, newsletter, magazine, or publication that is produced by, or on behalf of, a person, or that results in a direct, or indirect, subsidy to a person. </li></ul><ul><li></li></ul>
  13. 13. Pre-SB 133 Prohibitions Remain <ul><li>Providing Cash </li></ul><ul><li>Paying for employee salaries for a 12404 person </li></ul><ul><li>Buying furniture </li></ul><ul><li>Charging below market or pay above market rent </li></ul><ul><li>Purchasing facsimile machines </li></ul><ul><li>Providing time or productive effort of title company employee (e.g. gathering permits, sitting in an open house) </li></ul><ul><li>Offering below market rate loans, etc. </li></ul><ul><li></li></ul>
  14. 14. Prohibitions Are Not All Listed <ul><li>Statutory list of prohibited activities does not mean that unmentioned activities are O.K. </li></ul><ul><li>Remember the basic rule: No direct or indirect payment or provision of any kind can be made to a 12404 person. </li></ul><ul><li></li></ul>
  15. 15. Separate Entity <ul><li>Marketing representatives may not engage in prohibited conduct through a separate entity controlled by either: </li></ul><ul><ul><li>The marketing representative, or </li></ul></ul><ul><ul><li>The company that employs him/her. </li></ul></ul><ul><li></li></ul>
  16. 16. No “Ordinary Business Expenses” <ul><li>DELETED: Old provision of law that allowed reasonable expenditures constituting ordinary business expenses. </li></ul><ul><li>Replaced with a short list of specific expenditures that are permitted. </li></ul><ul><li>If the expenditure is not specifically permitted, seek advice from counsel or your compliance officer. </li></ul><ul><li></li></ul>
  17. 17. Permitted Expenditures <ul><li>Promotional items with: </li></ul><ul><ul><li>The title company’s logo “permanently affixed” AND </li></ul></ul><ul><ul><li>With a value of not more than ten dollars ($10) each. </li></ul></ul><ul><li>(NOTE: A sticker ≠ permanently affixed.) </li></ul><ul><li></li></ul>
  18. 18. Limitations on Promotional Items <ul><li>“ Promotional item” does NOT include: </li></ul><ul><ul><li>Gift certificate or gift card. </li></ul></ul><ul><li>For example: No Starbucks ® gift cards even if title company logo is affixed. </li></ul><ul><li>Do not provide promotional items in such volume as to defray business costs of 12404 person. </li></ul><ul><li></li></ul>
  19. 19. Permitted Expenditures <ul><li>Furnishing education or educational materials is permitted IF: </li></ul><ul><ul><li>Exclusively related to the business of title insurance </li></ul></ul><ul><ul><li>AND </li></ul></ul><ul><ul><li>Continuing education credits are not provided. </li></ul></ul><ul><li>REMEMBER: Don’t feed the attendees ! </li></ul><ul><li></li></ul>
  20. 20. Permissible Information Packages <ul><li>Information must be limited to: </li></ul><ul><li>Names of owners of record, </li></ul><ul><li>Descriptions of real property, </li></ul><ul><li>Property characteristics shown in Tax Assessor records, including: </li></ul><ul><ul><li>Year of construction of improvements, </li></ul></ul><ul><ul><li>Square footage of improvements, </li></ul></ul><ul><ul><li>Number of bedrooms and bathrooms, </li></ul></ul><ul><ul><li>Acreage, and . . . </li></ul></ul><ul><li></li></ul>
  21. 21. Permissible Information Packages <ul><li>Other attributes or amenities, such as: </li></ul><ul><ul><li>Swimming pools, </li></ul></ul><ul><ul><li>Views, </li></ul></ul><ul><ul><li>Zoning classifications or restrictions, </li></ul></ul><ul><ul><li>Use code designations and </li></ul></ul><ul><ul><li>Number of dwelling units of multiple family properties. </li></ul></ul><ul><li></li></ul>
  22. 22. Registration <ul><li></li></ul>
  23. 23. Registration <ul><li>“ No person shall be employed as a title marketing representative . . . unless the person holds a valid ‘ certificate of registration ’ . . .” </li></ul><ul><li></li></ul>
  24. 24. Registration <ul><li>“ Title marketing representative” means a person employed by a title company or controlled escrow company whose primary duty is to market, offer, solicit, negotiate, or sell title insurance. </li></ul><ul><li>Included in this definition : Sales representatives and sales managers. </li></ul><ul><li></li></ul>
  25. 25. Registration <ul><li>A title marketing representative does not include a person whose primary duties directly involve the creation, production, or issuance of the title policy or the performance of escrow services . </li></ul><ul><li>Excluded from this definition : Operation Managers, title officers, escrow officers, etc. </li></ul><ul><li></li></ul>
  26. 26. Registration <ul><li>People who do not need a certificate of registration are still required to obey the anti-rebate law. </li></ul><ul><li></li></ul>
  27. 27. Application Process <ul><ul><li>Online application must contain : </li></ul></ul><ul><ul><li>Residence, business and mailing addresses. </li></ul></ul><ul><ul><li>State whether previous certificate of registration was revoked, suspended, or limited. </li></ul></ul><ul><ul><li>Fingerprint submission and background check </li></ul></ul><ul><ul><li>Online certification by employer that anti-rebate law training is or will be provided within 60 days of the hiring date or date of application. </li></ul></ul><ul><li>No test is required for a certificate of registration. </li></ul><ul><li>BUT some companies may require testing. </li></ul><ul><li></li></ul>
  28. 28. Application Process <ul><li>Filing fee: Cost of processing, not to exceed $200. </li></ul><ul><li>Applicant may sell title insurance on a provisional basis while application is pending. </li></ul><ul><li>Applicant may NOT sell title insurance during the provisional period if a certificate of registration was previously revoked, suspended or limited. </li></ul><ul><li>During the provisional period, all anti-rebate compliance requirements still apply. </li></ul><ul><li></li></ul>
  29. 29. Application Process <ul><li>Dept. of Insurance investigates: 1) accuracy of information provided and 2) whether there is any negative prior marketing conduct and 3) background check DOJ/FBI. </li></ul><ul><li>Certificate is valid for three years . Certificate stays with the employee. </li></ul><ul><li>Department sends notice to renew, but applicant is responsible for renewal even without notice. </li></ul><ul><li>Re-training on anti-rebate law is required for renewal. </li></ul><ul><li></li></ul>
  30. 30. Notification Requirements <ul><li>Upon termination of employment, the former employer must notify the Department within 30 days of the termination. </li></ul><ul><li>Upon commencement of employment of an already certified title marketing representative, the new employer must notify the Department within 30 days of commencement of employment. </li></ul><ul><li>Re-training is not required for new employment of already certified marketing representative. </li></ul><ul><li></li></ul>
  31. 31. Administrative Hearing Process <ul><li>A proceeding to deny or revoke a certificate of registration is initiated by filing an “accusation,”,which is a written statement setting forth the acts with which the respondent is charged. </li></ul><ul><li>The agency must serve a copy of the accusation on the respondent. </li></ul><ul><li>The agency may request a hearing by filing a “statement of issues”, which is written statement specifying the statutes and rules alleged to have been violated and the information alleged by the Department of Insurance. </li></ul><ul><li>Within 15 days after service of the accusation the respondent may file a notice of defense and, if the agency has not requested a hearing, the respondent may request a hearing. If the holder of the certificate does not request a hearing the agency may proceed upon the accusation without a hearing. </li></ul><ul><li>The respondent is entitled to discovery of evidence in the agency’s possession </li></ul><ul><li>Contested hearings are presided over by an administrative law judge. </li></ul><ul><li>Witnesses may be called by both parties. </li></ul><ul><li>The proceedings at the hearing are reported by a stenographic reporter. </li></ul><ul><li>A decision is rendered by the administrative law judge. </li></ul><ul><li>The respondent is entitled to appeal the decision to the Superior Court. </li></ul><ul><li></li></ul>
  32. 32. Penalties – Marketing Representatives <ul><li>Issue a cease and desist order against person who markets title insurance without a certificate. </li></ul><ul><li>Revoke, suspend, restrict, or decline to issue a certificate if the title marketing representative or applicant has violated anti-rebate laws. </li></ul><ul><li>Impose a monetary penalty against the marketing rep that cannot be reimbursed by employer. </li></ul><ul><li>Conduct an administrative hearing requirement applies to denial of registration. </li></ul><ul><li></li></ul>Department may do the following :
  33. 33. Penalties – Marketing Representatives <ul><li>If certificate of registration is revoked, marketing rep cannot reapply for five years . </li></ul><ul><li>NOTE: Due process and administrative hearing requirements must be followed before a certificate can be revoked or denied. </li></ul><ul><li></li></ul>
  34. 34. Penalties – General <ul><li>CA law: The Company is still liable up to 5X the amount of each rebate and possible suspension or loss of title company’s license. </li></ul><ul><li>RESPA: Up to $10,000 for each violation and imprisonment of not more than one year. (Applies to giver and receiver.) </li></ul><ul><li></li></ul>
  35. 35. Commercial Bribery <ul><li>“ An employee of a title company who corruptly violates . . . the Insurance Code by paying , directly or indirectly . . . compensation . . . to a real estate agent , or a real estate agent who corruptly receives such compensation, as an inducement for the . . . referral of title business , is guilty of commercial bribery.” </li></ul><ul><li>“ Commercial bribery is punishable by imprisonment in a county jail for not more than one year , or by a fine of . . . $10,000 for each unlawful transaction, or by both a fine and imprisonment.” </li></ul><ul><li></li></ul>
  36. 36. EXAMPLES and Q & A’s <ul><li></li></ul>
  37. 37. Old Prohibitions Still Apply <ul><li>Examples of PROHIBITED payments: </li></ul><ul><ul><li>Printing flyers for a 12404 persons’ listings </li></ul></ul><ul><ul><li>Conducting “virtual tours” of a 12404 persons’ listings </li></ul></ul><ul><ul><li>Providing mail or mail meters </li></ul></ul><ul><ul><li>Offering messenger service that is not related to a title order or an escrow order </li></ul></ul><ul><ul><li>Waiving escrow or notary fees </li></ul></ul><ul><ul><li>Providing an “escrow coordinator” doing non-title company work </li></ul></ul><ul><ul><li>ETC. (List is not exhaustive.) </li></ul></ul><ul><li></li></ul>
  38. 38. Reimbursement of Expenses <ul><li>Two questions with one answer: </li></ul><ul><li>Can a title company employee pay an illegal expense if reimbursement from his or her employer is not requested by the employee? </li></ul><ul><li>Can a title company increase an employee’s compensation and let the employee pay for his/her own illegal expenses to a 12404 person if they are not reimbursed? </li></ul><ul><li>NO! Because . . . </li></ul><ul><li></li></ul>
  39. 39. Reimbursement of Expenses <ul><li>Prohibitions apply even if the title company does not reimburse the title employee’s expenses . </li></ul><ul><li>Ins. Code 12408.5: An “employee . . . shall not, directly or indirectly, pay or offer to pay any part of his or her compensation . . . to any person . . . as an inducement for . . . any title insurance or escrow business, and any payment or offer to pay this consideration is an unlawful rebate. ” </li></ul><ul><li></li></ul>
  40. 40. Food, Beverages and Entertainment <ul><li>Reimbursement of title employee’s personal meal and entertainment expenses when on company business is not prohibited. </li></ul><ul><li>BUT check with management – company policy may vary. </li></ul><ul><li>12404 persons must pay for their own food, beverages and entertainment . </li></ul><ul><li></li></ul>
  41. 41. Dinner With Friends <ul><li>If personal friend is a 12404 person. </li></ul><ul><ul><li>DON’T pick up the tab! </li></ul></ul><ul><ul><li>DO NOT take turns paying for both! </li></ul></ul><ul><li>Spouse or close relative is a 12404 person. </li></ul><ul><ul><li>Paying for your spouse/relative is O.K. </li></ul></ul><ul><li>Dinner at home with friend who is a 12404 person. </li></ul><ul><ul><li>True dinner party is O.K. </li></ul></ul><ul><ul><li>But NOT if it is really an office party disguised as a dinner party. </li></ul></ul><ul><li></li></ul>
  42. 42. Golf, etc. <ul><li>How about golf with a 12404 person that is a friend? </li></ul><ul><li>Just pay your own green fee. </li></ul><ul><li>DO NOT take turns paying for both. </li></ul><ul><li></li></ul>
  43. 43. Education and Training <ul><li>Must be exclusively related to the title business . </li></ul><ul><ul><li>PROHIBITED : Food or beverages </li></ul></ul><ul><ul><li>PROHIBITED : Continuing education credit provided by the title company </li></ul></ul><ul><ul><li>PERMISSIBLE : A company employee speaks to a law firm, discusses only title business, does not provide food, but law firm provides CLE credits to attendees. </li></ul></ul><ul><li></li></ul>
  44. 44. Gifts, Etc. <ul><li>PROHIBITED : </li></ul><ul><ul><li>Raffle/Door prizes </li></ul></ul><ul><ul><li>Gifts </li></ul></ul><ul><ul><li>Gift certificates (even if company logo is affixed) </li></ul></ul><ul><ul><li>Flowers (can’t affix a logo!) </li></ul></ul><ul><ul><li>Contests </li></ul></ul><ul><li></li></ul>
  45. 45. Promotional Items in Bulk <ul><li>Can we provide moving boxes printed with a company logo if the boxes cost less than $10.00 each? </li></ul><ul><li>Yes, BUT ONLY if the total cost of boxes provided to each person is ≤$10.00. </li></ul><ul><li></li></ul>Example:
  46. 46. Out of State Business – Registration <ul><li>Title Marketing Representative residing in CA needs to be registered if any business is in CA. </li></ul><ul><li>Title Marketing Representative residing out of state must have a certificate of registration if “doing business” in CA. </li></ul><ul><li>What about someone who does only a little business in CA? Situations vary a great deal – consult counsel or compliance officer. </li></ul><ul><li></li></ul>
  47. 47. Out of State Business – Rebates <ul><li>An out of state employee often works for the same insurance company that is licensed in California. </li></ul><ul><li>That company is subject to CA law because it is licensed here. </li></ul><ul><li>If subject to CA law, it does not matter where entertainment occurs. </li></ul><ul><li>Situations vary a great deal – consult counsel or compliance officer. </li></ul><ul><li></li></ul>
  48. 48. Affiliated Companies <ul><li>Do anti-rebate restrictions apply to non-title company affiliated companies? </li></ul><ul><li>No. Most affiliated companies are subject to RESPA – reasonable expenses are allowed. </li></ul><ul><li>BUT : </li></ul><ul><ul><li>Aside from a return on an ownership interest, absolutely no consideration can flow from the title company to the affiliate, directly or indirectly . </li></ul></ul><ul><li></li></ul>
  49. 49. Computer Software <ul><li>PERMITTED ONLY IF: </li></ul><ul><ul><li>Software purchased for fair market value </li></ul></ul><ul><ul><li>Software is exclusively for accessing or providing information related to title and escrow services. </li></ul></ul><ul><ul><ul><li>Cannot contain any software unrelated to title and escrow services. </li></ul></ul></ul><ul><ul><ul><li>For example, contact management software is NOT related to title and escrow. </li></ul></ul></ul><ul><li></li></ul>OR
  50. 50. Advertising <ul><li>PERMISSIBLE : Advertising title and escrow services - company to whom cost is paid must not be affiliated with a 12404 person. </li></ul><ul><ul><li>Example: Homes and Land catalog. </li></ul></ul><ul><li>PROHIBITED : Advertising in a publication produced by a 12404 person. </li></ul><ul><li>PROHIBITED : Advertising relating to sale of a specific property. </li></ul><ul><li></li></ul>
  51. 51. Advertising in Trade Publication <ul><li>PROHIBITED : Advertising in a publication “produced by, or on behalf of, a person, or that results in a direct, or indirect, subsidy to a [12404] person.” </li></ul><ul><li>PERMISSIBLE : Advertising in a publication or at a convention of a large trade organization where the cost is reasonably related to advertising a title company’s services. </li></ul><ul><li></li></ul>
  52. 52. Service Providers <ul><li>Arrangements with companies that provide a service to the real estate industry: </li></ul><ul><ul><li>PERMITTED : An arrangement that simply allows a title company to advertise its own services. </li></ul></ul><ul><ul><li>PROHIBITED : An arrangement that allows a 12404 person to obtain the service at a discount. </li></ul></ul><ul><li></li></ul>
  53. 53. Membership Organizations <ul><li>Permissible : </li></ul><ul><ul><li>Affiliate membership and committee participation in established real estate trade organization </li></ul></ul><ul><li>Prohibited : </li></ul><ul><ul><li>“ Sponsorship” or donation to trade association function </li></ul></ul><ul><ul><li>Hospitality suite or “event” at convention </li></ul></ul><ul><ul><li>Coordination of MLS meetings or open house lists </li></ul></ul><ul><li></li></ul>
  54. 54. Charitable Contributions <ul><li>Company donations must be paid directly to the charity . </li></ul><ul><ul><li>Must be a legitimate 501(c)(3) charity (i.e. one for which donations are tax deductible) </li></ul></ul><ul><ul><li>Includes charity golf tournaments </li></ul></ul><ul><li></li></ul>
  55. 55. Charitable Contributions <ul><li>Suppose a title company donates $1,000 to a charity golf tournament and receives four tickets to play. </li></ul><ul><li>Can you give three tickets to a 12404 person to play with you? </li></ul><ul><li>NO! Those tickets are a valuable consideration and you cannot give them to a “person.” </li></ul><ul><li></li></ul>Prohibited Charitable Contributions (examples):
  56. 56. Rent Payments <ul><li>Any leasing arrangement between a title company and a 12404 person will be scrutinized. </li></ul><ul><li>PROHIBITED rent payments: </li></ul><ul><ul><ul><ul><li>“ Leasing” a desk in a 12404 person’s office. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Paying above-market rent to a 12404 person. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Charging below-market rent to a 12404 person. </li></ul></ul></ul></ul><ul><li></li></ul>
  57. 57. Pricing Violations <ul><li>Title and escrow rates are filed with the Department of Insurance. </li></ul><ul><li>Charging less than filed rates is defined as a rebate. (Charging more is simply illegal, and exposes a company to lawsuits.) </li></ul><ul><li>“ Accidentally” quoting a rate that is too low: </li></ul><ul><ul><li>No exceptions! A title company cannot charge anything other than the filed rate. </li></ul></ul><ul><li></li></ul>
  58. 58. Quoting a Wrong Rate <ul><li>Ins. Code 12405: A title company cannot “ quote any fee or make any charge for a title policy to any person [other than] as set forth in its then currently effective schedule of fees and charges.” </li></ul><ul><li>Ins. Code 12481.4: “The Department may revoke, suspend, restrict, or decline to issue a certificate of registration if it determines that the title marketing representative or applicant has violated provisions of Article 6 [includes Section 12405].” </li></ul><ul><li>So . . . Do not quote a rate that is not a filed rate. </li></ul><ul><li></li></ul>
  59. 59. The End <ul><li></li></ul>