Banking Interpretations

NYSBL 96(1), and 97(4-a) and GRBB Part 6 and Part 14

November 16, 2005

[ ]

Dear [ ]:

I am writing in response to your letter dated October 14, 2005 addressed to Charles Carson of this office in which you raise certain questions regarding the permissibility of a subsidiary of a New York state- chartered bank engaging in title insurance activities.

As you suggest in your letter, New York State-chartered banks are permitted to invest in title insurance companies. However, neither the bank nor the title insurance company would be required to be located in a place with a population of 5,000 or less (i.e. a "small town"). This restriction on geographic location, which is found in Part 6.3 of General Regulations of the Banking Board, applies to the situation where a bank, as opposed to one of its subsidiaries, seeks to engage directly in insurance agency activities. In addition, this restriction does not apply to title insurance agency activities. In 1997, the Banking Department determined that it was permissible for a state-chartered bank to invest in a title insurance company through an operating subsidiary, pursuant to Banking Law Section 97(4-a)(f) and Part 14.3 of the Banking Board's regulations. As you are probably aware, if the Department finds that an activity is permissible for a bank to conduct through an operating subsidiary, this means it is permissible for a state- chartered bank to conduct directly, since Banking Law Section 97(4-a)(f), which is the section interpreted to authorize operating subsidiaries', permits a state bank to invest in "stock or other equity investments in subsidiar[ies].... organized to transact any other business in which the bank may engage directly". The Department, in effect, found that a state- chartered bank may engage in title insurance activities as an activity incidental to the banking business. The insurance agency activities that are authorized under Part 6.3 of the Banking Board's regulations, by contrast, are authorized under the State's wild card statute authority to allow state- chartered banks to engage in certain insurance agency activities directly from small towns to the same extent as is permitted for national banks. Such insurance agency activities, if conducted other than from a small town, are not otherwise authorized for national or state-chartered banks to engage in directly.

Your second question concerns the scope of Section 6409(d) of the New York Insurance Law, which is designed to prohibit kickbacks or other payments by title insurance companies or their agents for business directed to the title insurance company. That section provides, in part:

"No title insurance corporation or any other person acting for or on behalf of it, shall make any rebate of any portion of the fee, premium or charge made, or pay or give to any applicant for insurance, or to any person,... either directly or indirectly, any commission, any part of its fees or charges, or any other consideration or valuable thing, as an inducement for, or as compensation for, any title insurance business."

You inquired whether the provision cited applies to title insurance business conducted in both residential and commercial transactions. It is my understanding based on an informal conversation with an attorney for the New York Insurance Department that it does apply to both residential and commercial transactions. However, the Banking Department is not in a position to opine formally on the scope of the New York Insurance Law. Therefore, we recommend that you seek a definitive response to this question from the New York Insurance Department.

I trust that this is helpful.


Rosanne Notaro
First Assistant Counsel

Cc: Examiner Charles Carson