An Example of a Deceptive Practice
In this unique Compliance Clip (video), Adam provides a personal experience that relates to a potential deceptive practice. Be sure to close your door for this one as the clip gets a bit bizarre in spots…
Learn more in our UDAAP Foundations course: www.compliancecohort.com/udaap-foundations.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about an example of a deceptive practice.
Now, as I'm recording this Compliance Clip, I actually just finished our new program on UDAAP Foundations and was going through a slide where we were talking about one of the prongs of determining whether an act or practice is deceptive. Under UDAAP, you've got unfair, deceptive, and abusive. Three different tests, and each test has three different prongs. And under deceptive, there's a three-prong test to determine if an act or practice is deceptive.
In looking at the first prong of deceptive, so this is just a very, very small part of unfair and deceptive acts and practices, and including abusive under the new UDAAP, there is a piece that talks about whether or not an act or practice is misleading or is likely to mislead. So when you're determining whether an act or practice is deceptive, one of the tests is, is an act or practice misleading or likely to mislead? And in the CFPB’s exam procedures, they talk about how written disclosures may be insufficient to correct a misleading statement or representation.
This is interesting because what this is saying, this finite part, I know I'm jumping into the weeds here, but I like to do that sometimes on these compliance clips. And if you look into the weeds here, what you have is an instance where consumers could be directed away from qualifying limitations. So if you have a written disclosure and you disclose what you need to do, that may not be sufficient. If your staff is directing them away from those disclosures by saying things like, you don't need to read this. That could and in of itself pass the test of being a problem. So you fail the test really, of being misleading or likely to mislead when you're looking at the three-prong test for deceptive.
The reason I wanted to include this as a compliance clip is I have a story that I included in our UDAAP Foundation's class that I thought would be worth sharing with you because it's a personal story that I experienced. What happened was, several years ago, I had an older vehicle that I had paid off. The transmission went out and I decided to replace the transmission. And so in replacing the transmission, I decided, instead of using my cash on hand, I decided to use the equity in the vehicle to get cash back. I utilized a financial institution for this transaction. I called up and said, “Hey, I need a new transmission. The car's worth a lot more than what I need.” They said, “No problem.” They did all the paperwork over the phone. When I went into closing, I then met somebody for the first time at the closing desk, and this was a young lady who was probably in her early to mid twenties doing the loan closing. And when I go into loan closings, what I try to do is I try to give people a fair chance.
I'm not what you would consider an ideal customer because I understand rules and regulations. So I try to tell people and say, “Look, I do regulations for a living. Just let me look at the documents.” Well, that must have gone through one ear and out the other because she decided to go into her spiel. For those of you who have closed loans before, even Saturn loan closings, you understand that lenders go through a spiel because there's so many documents, consumers get overwhelmed. So you have to kind of lead them into understanding the most important terms on what they're signing. A lot of times people will say something like, you know, this is what this document is. Look at this, look at this sign here. Alright, that's a typical spiel right here, here, here, sign here. That's a spiel. And you do that page after page after page.
Well, this young lady started doing this, and I just let her go. I just tried to let her go. Then I, of course, reviewed what I wanted to review. Took much longer than she expected, of course, because it's me. And it was interesting because we're going through, she's doing fine, but we get to a document and it turns out that I quickly see it's the TIL. What she does in this document, she quickly covers up the top left corner. It's on her desk. She literally just covers it up. She goes, “Don't look at this. This is not right. This is not your interest rate. So don't look at this. Don't look at this. This is not right. Just sign here, sign here. This is not right. We don't know what this is.” And I'm looking at this and I'm saying, “What do you mean you don't know what this is? This is the TIL. That's the APY.” She goes, and I should go into real character here, she goes, “I know it's the APY, we don't know what that is. We've contacted our people, they've contacted their people, and we don't know what it is. So this is not right. Do not look at this. This is not your interest rate.” I kid you not, she would not take her hand off the document. She would not remove it. And she wanted me to sign it without removing her hand. I could tell this was the spiel she did every single time she did a closing because she had no idea what the APR was. And I may have said APY, that'd be a dumb mistake, but it, the APR, she had no idea what the APR was, the annual percentage rate. So I said to her, ”Well, if you remove your hand for a second and look below where it says APR, you will see that it says that the APR is the cost of the loan expressed as an interest rate. Her response was priceless. She goes, “Oh, what? Oh my gosh. Are you serious? Oh, that makes so much sense. Why didn't anybody tell me that before? Thank you. Oh!” That's what she did. I kid you not. True story.
That is a perfect example of how an act or practice could be misleading. Even though a written disclosure was appropriately provided to a consumer, when in fact, an employee directed consumers away from the qualifying limitations of the document and the actual disclosure, that's an example of a deceptive act or practice. One of the keys there is you might wanna take a look at what your closing process is and sit through your lender's spiels. I know they don't always give you the full spiel, but maybe you sit through them with an actual closing just to determine to see what is actually being done. Because this act or practice, based on what your lenders say, could in fact be an unfair deceptive act or practice. Now, that's an exact example.
