Regulators…Mount Up!
“Chaos is a ladder,” said a conniving central character on the hit HBO series Game of Thrones, a fitting description of how shifts in the settlement industry’s status quo may create opportunities for some…and challenges for others. In the business world, stability is generally crucial for long-term planning, while sudden changes can disrupt a once static landscape. Moreover, few things can cause more potential upheaval than an American election year, where political pledges are frequently numerous, leaving companies to quickly adapt to potentially enacted reforms.
For the industry many of us share, recent developments in three key areas may carry significant implications: the Supreme Court’s decision regarding Chevron deference (1984 Chevron v. Natural Resources Defense Council), changes in Realtor commission structure, and the Federal Trade Commission’s (FTC) recent attempt to ban non-compete agreements. So, let’s briefly explore what each of these legal challenges could mean for the title insurance and settlement industry.
Supreme Court Overrules Chevron Deference: Greater Judicial Scrutiny Ahead
The U.S. Supreme Court recently overruled the long-standing Chevron deference, which had allowed courts to defer to federal agencies when interpreting ambiguous statutes. This doctrine gave agencies like the Consumer Financial Protection Bureau (CFPB) significant authority in rulemaking and enforcement. The Court’s decision, authored by Chief Justice John Roberts, limits this deference, meaning courts will now play a more direct role in interpreting statutes.
For the title insurance industry, this change brings a few important considerations:
- Increased Legal Uncertainty: Without Chevron deference, judges now have greater discretion in interpreting laws, which could potentially lead to inconsistent rulings. Title insurance companies may face a more unpredictable regulatory environment, increasing the possible risk of litigation.
- Weakened CFPB Enforcement: The CFPB, a major player in regulating real estate and lending, may find it harder to enforce aggressive regulatory positions. This could reduce immediate compliance pressure on title insurers, but the long-term effects are less clear.
- Operational Considerations: Title companies may need to devote more resources to legal analysis and compliance as judicial interpretations evolve. The legal framework will likely become more fragmented, requiring an enhanced proactive approach to remain compliant.
It should be noted that the Supreme Court’s decision doesn’t affect past rulings under Chevron deference but sets the stage for a more complex regulatory environment moving forward. Title insurance companies should likely prepare for a potentially more litigious landscape, requiring vigilance in compliance and legal strategies.
Realtor Commission Restructuring: Ripple Effects in the Housing Market
Another major development impacting the real estate and title industries is the restructuring of the traditional realtor commission model. The National Association of Realtors (NAR) recently agreed to significant changes in how commissions are structured, following an antitrust lawsuit that challenged the long-standing 6% commission standard.
Key changes include the removal of agents' compensation from MLS listings and the requirement for written agreements between buyers and brokers. These changes could reshape the real estate market, with potential impacts on title insurance:
- Lower Commission Rates: The traditional seller-paid buyer’s agent commission is expected to drop by 25-50%, reducing transaction costs for home buyers. Lower costs could increase home sales, potentially driving up demand for title insurance services.
- Shift Toward Alternative Models: As competition increases, alternative brokerage models, such as flat-fee or discount services, could gain traction. Title companies may need to adjust their marketing and services to accommodate these changes.
- Widespread Reforms: These reforms represent one of the most significant shifts in the real estate industry in decades. Title insurance agents that provide closing and settlement services must stay informed about changes in realtor compensation structures, as these could affect transaction volumes and overall housing costs.
The ripple effects of these changes will likely result in a more competitive real estate market, with shifting dynamics in transaction costs. Title insurance companies that adapt to these evolving conditions will be better positioned to capitalize on new market opportunities.
Non-Compete Agreements: Legal Battles Over Workforce Mobility
Non-compete agreements, designed to prevent employees from joining competitors for a set period, have long been a contentious issue. In 2024, the announced a new rule that would ban most non-compete agreements across the U.S. The stated goal is to boost job mobility, innovation, and wage growth.
However, this rule has faced legal challenges from the jump, including a nationwide injunction issued by a Texas federal judge. Regardless, the trend toward limiting non-compete agreements is clear, and title insurance and settlement companies should be prepared for potential changes:
- Increased Job Mobility: If the ban is ultimately enforced, employees will have greater freedom to switch employers. This could lead to higher turnover rates, requiring employers to invest more in both proactive and reactive employee retention strategies.
- Potential Wage Increases: Research suggests that non-competes may suppress wages by limiting advancement for employees. The removal of these agreements could drive up wages, as workers gain more leverage in negotiating their compensation packages.
- Innovation and Competition: A ban on non-competes may foster more innovation, with more employees starting their own businesses or joining opportunistic competitors. While this could lead to increased competition for talent, it also presents opportunities for growth and differentiation in the title insurance industry as the top talent naturally coalesce around the best processes.
- Alternative Legal Protections: Title insurance and settlement companies may need to rely more on non-disclosure and non-solicitation agreements to protect sensitive information and client relationships. These legal tools can help mitigate the risks associated with increased job mobility.
While the legal battles over non-competes are ongoing, it’s possible that the days of widespread non-compete agreements may be coming to an end. Title insurance and settlement companies should begin planning for a future where these agreements are less enforceable and begin focusing on strategies for retaining top talent.
In The End
Chaos and turmoil can create business opportunities, but it can also simply lead to even more chaos. Things ultimately did not work out well for the aforementioned “Little Finger” in Game of Thrones. The chaos of new rules and regulations in the Title Insurance and Settlement Industry will likely not reach the fevered pitch of “Kingdom” wide war that it did in a fantasy TV series, but it’s probably best to be prepared. It is apparent that many employers face both challenges and opportunities due to recent regulatory and legal changes.
To navigate this evolving landscape, employers may want to consider strengthening their compliance programs, follow closely and stay updated on judicial rulings while consulting with legal counsel to help mitigate risks. As non-compete agreements remain within both federal and state regulatory crosshairs, employers may also look to enhance employee retention by investing in development, offering competitive compensation, and fostering a positive workplace culture. In response to changes in the realtor commission structure, firms may need to adjust their pricing models and marketing strategies to remain competitive. Additionally, preparing for ongoing legal battles, such as those related to the Supreme Court’s Chevron decision, may be crucial for future success. Ultimately, staying proactive and adaptable should help title insurance and settlement companies thrive in this dynamic environment. And remember…Winter is quite literally coming.
Anderson|Biro is a full-service, Executive Search firm dedicated to the Financial Services sector around the country. We source talent to service all aspects of the Land Title Insurance, Settlement, and Appraisal industries. We offer quality solutions for clients in these primary fields and beyond. Our candidates are screened for specific industry experience, outstanding track records, and values that complement your mission and culture. We have also built successful partnerships with leading Homebuilders, iBuyers, Fintech, Servicers, Law Firms, Real Estate Brokerages, and Lenders with direct or indirect stakes around the real estate closing table.