Example of Unfair UDAAP Violation
In this Compliance Clip (video webinar), Adam provides a case study example of an “unfair” UDAAP violation, which is just one of three types of violations when considering all types of UDAAP violation examples. This video explains that one example of an unfair UDAAP violation would be when a servicer refuses to release a lien after a mortgage loan has been completely paid off by a consumer. As you would expect, this practice is a “bait and switch” tactic where consumers would not have expected to be unable to get their liens released after paying of their mortgage loan and the result, of course, is an example of an “unfair” UDAAP violation.
For more information on UDAAP - and for a list of over 50 known UDAAP violation examples - take a look at our video program on UDAAP Foundations.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to give an example of an unfair UDAAP violation. So what is UDAAP? UDAAP stands for Unfair, Deceptive, or Abusive Acts or Practices. Unfair is one type of a UDAAP violation. Let's take a look at an example of an unfair UDAAP violation.
One example includes refusing to release a lien after a consumer makes a final payment on their mortgage. Basically, I paid my mortgage for 30 years and I finally paid it off but the bank or credit union decides not to release my lien. That is considered unfair and, in fact, this is something that the Federal Trade Commission found at a financial institution.
Now, what we have to understand is in order for this to be a UDAAP violation, it has to pass a three-prong test or really it's failing this three-prong test. The first prong of unfair is that it must cause substantial injury and this example of failing to release a lien after the mortgage has been paid fails the test of substantial injury because consumers sustained economic injury when the mortgage servicer did not release these liens. The second prong test is that the practice or act cannot be outweighed by countervailing benefits. So for example, there may be something that seems to be unfair but they also get a thousand dollars that kind of alleviates that burden. In this case, there really was no benefit at all for consumers who paid and paid and paid and paid off their mortgage but then the lien was not released. There was no benefit at all. So they failed that second prong test which leads us to the third prong which is it's not reasonably avoidable and, in fact, all consumers I know would expect that when you pay something off that the lien would be released whether it's a motorcycle, a car, or a house so it was not reasonably avoidable because nobody would expect that it would not be released.
This example of failing to release a lien when somebody paid off their mortgage is an unfair UDAAP violation because it failed these three prongs of the three-prong test that was established by the Federal Trade Commission
That's all I have for you today. I hope you enjoyed this Compliance Clip.