When can title companies give gift cards? Never, state says

Question: When is a gift card not just a gift card? Answer: When it’s an inducement.

“At the end of the year, giving gift cards to your referral sources, or having a big party — that’s not marketing,” said Maria Vullo, superintendent of the state’s Department of Financial Services, speaking to an audience of lawyers on Tuesday at the New York City Bar Association. “That’s a gift,” she said. “It’s an inducement.”

The chief insurance regulator was using the pulpit to offer a full-throated defense of a DFS crackdown on excessive marketing among title insurers. She said the new regulations — which took effect Feb. 1 after a slight delay — are modeled after regulations in other business sectors.

“You are not supposed to give gifts or lavish meals and entertainment on your referral sources,” she said. “It’s either compensation for prior referrals or it’s an inducement for additional referrals.”

Vullo said New York has the highest title insurance premiums in the country. “It’s not because we’re an expensive state to live in,” she said. “A $400,000 home here costs higher in the premium than a $400,000 home in Connecticut or New Jersey — like 25 percent more.”

She said she “felt the need” to address that discrepancy, and that “it was time New York did this.”

Title insurers have pushed back against the regulations, which ban the firms from paying for clients meals, drinks or entertainment. Some have said the rules are hampering their ability to conduct legitimate business.

Last week, the New York State Land Title Association (along with two title companies) filed an Article 78 petition to challenge the new rules, which they describe as “unconstitutionally vague.” In court documents, the groups claim that the crackdown will wreak havoc on the industry, and result in layoffs and reduced services.

“DFS must be stopped,” they said in the filing. Marketing activities “are critical for the success of the industry.”

On Tuesday morning, one title agent in the audience said if gift cards and parties are a problem, Vullo should ban those — but not marketing expenses altogether.

“Prohibition led to more drinking,” he said. “When you ban things they don’t go away. You’re telling the good guys we’re screwed.”