In 1980, ALTA’s President expressed the position of ALTA concerning controlled business arrangements as follows:
[C]ontrolled business arrangements “are as harmful as the payment of outright kickbacks prohibited by Congress under Section 8 of RESPA. [T]he American Land Title Association clearly and unequivocally opposed controlled business arrangements, and HUD should issue regulations to eliminate the problem.”
In 2011, ALTA filed an amicus curiae brief in the United States Supreme Court supporting the position that says the following concerning controlled business arrangements:
The business arrangements that [the consumer] alleges violate RESPA are decades old, widespread, and exceedingly popular. If they are found illegal even where they do not harm consumers at all, let alone in any tangible way, the primary effect will be to raise costs and lower quality industry-wide, counterproductively causing precisely the effects Congress intended to prevent with RESPA.
History is often times an inconvenient record that tarnishes the selective agenda of the present. Clearly, ALTA is no stranger to this fact. Thirty years ago, controlled businesses of any kind were unequivocally harmful for the title insurance industry and were deemed so bad that they were to be “eliminated”. Today, those same arrangements are considered by ALTA to be “widespread and popular” within our industry. So widespread and popular that the self-proclaimed voice of the title insurance industry now finds it part of its moral imperative to save them at all costs — lest we risk raising the costs of our premiums and lowering the quality of our title insurance product.
Their words, not ours. The turnabout is simply amazing — and potentially embarrassing for ALTA.
In case you have not read ALTA’s amicus brief, a copy of it is embedded below. Several themes stand out from the brief: (1) Article III standing; (2) injury-in-fact analysis; and (3) the industry’s “we-are-too-big-to-be-undone” salvo.
It is the latter of the three that troubles the rational mind. (Leave the others for the lawyers to figure out)
To support its amicus, ALTA argues that controlled business arrangements — especially those in which larger national underwriters purchase minority interests in smaller title insurance agencies in exchange for the exclusive referral of all of their settlement business — are good for consumers AND good for small business owners. Why? Because it gives small business owners the access to necessary capital that it might otherwise require to stay in business.
Hold that thought, though.
Not only that, ALTA also argues that undoing the alleged harm of the controlled business arrangement would be expensive and harmful to the participants who allowed them to flourish in the first place. All of this coming from the same organization that thirty years prior argued vehemently to Congress of the harmful evils they represent. It is a strange and inconsistent history.
The new ALTA gospel says “controlled business arrangements could be illegal, but since they are so widespread and harmful to undo, they must not be undone because the harm to the small businesses (that ALTA does not really represent) would be too great”. Again, a strange and inconsistent argument when viewed with the prism of history.
One must dispense with the obvious at this point. ALTA is the trade organization for the title insurance industry which by its own account created nearly $10 billion dollars in operating revenue in 2010. Nearly 90% of that sum was constituted by four national title insurance underwriters — all with a vested interest in the outcome of the Edwards suit. To characterize these statistics as proof that ALTA is the champion of small business is to throw the definition of a “small business owner” or an “independent title agent” on its head and argue that there is no material difference between General Electric and Bob’s General Store. Preferring not to do that in this post, it must be assumed that ALTA is making its amicus position in order to protect the largest contributors to its cause — the national title insurance underwriters — who by any measure are not small businesses and by ALTA’s own measure are billion dollar entities.
Under ALTA’s public policy argument expressed in the Edwards brief, the law is only meant to be observed if the malfeasor is caught shortly after the beginning of the illegal act and only if the CBA ingratiaties itself with relatively small amounts of money. The ALTA amicus argument goes further and implicitly constructs a corollary that if a CBA engorges itself over time with large amounts of money — as is the case with the numerous CBAs now actively sponsored by ALTA and its four largest members – and outlasts what can only be described as historically weak state and federal regulatory enforcement for a sufficient period of time (i.e. 10 – 20 years), the CBAs and their benefactors should be rewarded with a free pass from legal scrutiny. In other words, “too-big-to-fail” all over again.
The record is clear that ALTA never pushed this argument when RESPA was designed in the 1970′s and later modified in the 1980′s. With the growth of the national underwriters over that timeframe, the convenience of this argument is now too good to pass on.
Does ALTA really believe that there are those who are too big and too powerful for the law’s reach and should therefore be rewarded for their efforts by having the law not apply to their business arrangement? As a small business owner, this position is as insulting as it is illogical. Yet, there it is being presented as the new policy maxim for the direct consumption of the highest court in the United States. Think about the potential consequences of this argument beyond title? It is huge.
Now going back for a moment on the argument ALTA made in the amicus to show how these arrangements are good for small business owners, one needs to ask a simple question. How many starving ”Mom and Pop” title insurance agencies do you know that received $2 million dollars in cash and national title insurance underwriter stock in exchange for a minority share and an exclusive agency agreement in the last year? 2 years? 5 years?
Missing from ALTA’s rather hollow argument about serving the needs of small business is the fact that these captive title insurance agency agreements, which are at issue in the Edwards case, are not made with small businesses (i.e. those who close 10-50 orders per month). Rather, they are made almost exclusively with only the largest competitors in any particular title insurance market.
The title insurance agency at issue in Edwards was arguably the largest title insurance agency operating in Cleveland, Ohio at the time of the agreement and was anecdotally closing 500-700 mortgage transactions per month. There was no cash crunch or Depression-era bread line at issue in the Edwards case. No sad kitchen table scenes with husband and wife figuring out how they were going to make ends meet. Instead, First American wanted to tie up the biggest title insurance agency in Cleveland, Ohio, wanted to keep other national title insurance underwriters from doing the same thing and paid a hefty ransom to make it happen. Plain and simple. Any characterization that title insurance underwriters sought charitable motivations for these captive title insurance agency agreements other than buying market share is not a credible statement in any way.
The fact that ALTA would try to frame the reasons why these captive agreements were allegedly good for small business owners by using today’s poor market conditions is a questionable tactic. Today’s business climate is wholly unlike the climate five years ago or even ten years ago. If the national underwriters really believed in that argument, they would be grabbing small title insurance agencies up by the scores in today’s market. Surely, in today’s poor market, the asking price for capital infusions would be a true buyer’s market. Yet, where are the national underwriters? They aren’t buying up small title insurance agencies. They are cutting them off by the hundreds. Canceling appointments. Selling off interests. Divesting themselves of the overhead. To argue that these arrangements are good for small business owners and provides them with an important option to their survival is shockingly erroneous.
But in the end, up is down in the title world. Black is white. What was once the great evil is now the great savior. And as long as no one questions why, the largest market participants will continue to degrade the quality of the title insurance industry in order to maximize profits and hasten the further consolidation of our greatest asset — the value of our land title records. ALTA can do good things for national underwriters and, by proxy, the title insurance industry. The argument it is making in Edwards is not one of them.
And because they probably paid a ton of money for their lawfirm to write this Brief, you should probably read it and decide for yourself.