For many years, the lending community has been subject to statutory and regulatory obligations to protect their customers’ nonpublic, personal information. Recently the Consumer Financial Protection Bureau (CFPB) released Bulletin 2012-03, which restated and further emphasized the importance of those obligations, especially in the context of banks’ relationships with third-party vendors—such as those providing title insurance and settlement services to a lender’s clients. Since the CFPB has developed a reputation for levying huge fines against those who fail to comply with their rules, and has already started auditing mortgage lenders for third-party vendor risk-management compliance, lenders have responded by increasing their efforts to perform due diligence on title companies. The type of due diligence performed has been inconsistent within the industry, with some lenders asking vendors to complete questionnaires, others requesting vendors to submit their policies and procedures, and still others conducting interviews and on-site visits.
In response, the American Land Title Association (ALTA)—the title industry’s national trade association since 1907—stepped in to help its approximately 5,000 members (title insurance companies, title agents, independent abstracters, title searchers, and attorneys) and the title industry as a whole. ALTA’s solution was to establish a “best practices” framework to assist title companies with satisfying their responsibility to clients, underwriters, banks, and mortgage lenders. Beyond the establishment of these voluntary best practices, ALTA also has proposed that title companies obtain an assessment by an independent third party to demonstrate the title company’s compliance with ALTA Best Practices.
While the development of the ALTA Best Practices Framework is new to the industry, from an operational standpoint, many title insurance and settlement companies already have been applying similar standards to satisfy their responsibility to underwriters. Best Practices initially requires an organization to prepare a written set of policies and procedures that address each of the seven pillars of Best Practices as outlined by ALTA:
2. Escrow Accounting Procedures
3. Privacy & Information Security
4. Settlement Procedures
5. Title Policy Production & Delivery
6. Professional Liability Insurance Coverage
7. Consumer Complaints