[not able to retrieve full-text content]Philip Baker accepted he defrauded his hedge-fund clients. He was sentenced to twenty years in federal prison. He then devised a getaway plan.
Following the economic crisis in 2008, the Federal government switched among the banking industry’s friendliest regulators into certainly one of its toughest. However that agency has become beginning to appear like its old self — and achieving an important player within the Trump administration’s campaign to roll back rules.
The regulator, work from the Comptroller from the Currency, which oversees the nation’s greatest banks, makes it simpler for Wall Street to provide high-interest, pay day-style loans. It’s softened an insurance policy for punishing banks suspected of discriminatory lending. And contains clashed with another federal regulator that pressed to provide consumers greater capacity to sue banking institutions.
The shift, detailed in government memos and interviews with current and former regulators, is unfolding without congressional action or perhaps a rule-making process. It is occurring rather through directives issued in the stroke of the pen through the agency’s interim leader, Keith A. Noreika, who — such as the nominee to fill the publish moving forward — has deep connections towards the industry.
Even just in his couple of several weeks at work, Mr. Noreika makes the brand new direction obvious. In a ending up in staff people within the summer time, he asserted that the company was coming back as to the he known as its natural condition, based on certainly one of individuals who attended.
The shift may help revive a few of the practices and policies that came about around the agency’s watch among the economic crisis and banking scandals of about ten years ago — which brought congressional investigators to accuse it of “systemic failures.”
The current changes under Mr. Noreika are members of a concerted effort through the Trump administration to wind down Obama-era rules and install some regulators who range from financial industry itself.
President Trump’s nominee for that position now occupied by Mr. Noreika, Frederick Otting, who’s likely to be confirmed through the Senate when Wednesday, is really a former leader at OneWest Bank. The financial institution, where Mr. Otting labored with Steven Mnuchin, the Treasury secretary, attracted the scrutiny of regulators because of its aggressive property foreclosure practices.
Mr. Trump, that has known as the Dodd-Frank Act, the regulatory overhaul passed this year, a “disaster,” nominated an old banking industry lawyer and-equity executive to fill the very best regulatory job in the Fed. The mind from the Registration is another former industry lawyer.
Congress is going after its very own unwinding of Dodd-Frank. Within the latest effort, several senators that incorporated Republicans and Democrats suggested legislation on Monday that will decrease the scrutiny of massive regional banks.
Some senators, including Sherrod Brown, Democrat of Ohio, oppose the legislation. They also have expressed concerns about Mr. Noreika’s decisions and also have voted against Mr. Otting’s nomination within the Senate Banking Committee.
It’s unclear whether Mr. Otting will fully embrace the interim leader’s policies, however the approach of both men contrasts dramatically with this of Thomas J. Curry, an Obama appointee, who implemented measures meant to bolster the agency’s regulatory power. Mr. Curry, a longtime regulator, helped proceed stricter capital needs for banks and extracted numerous large fines from Wall Street institutions.
By removing Mr. Curry, the Trump administration pleased banking lobbyists and lawyers who felt the agency had treated them unfairly on his watch.
“It shows a obvious path toward a less confrontational approach,” stated Douglas Landy, someone focusing on banking institutions in the law practice Milbank, Tweed, Hadley & McCloy. The brand new tack, he stated, meant “more working it together rather of slamming one another.”
Prior to the crisis, some banks shopped around for that friendliest possible regulator, frequently landing in the office of Thrift Supervision, that was later merged using the Office from the Comptroller from the Currency under Dodd-Frank. With Mr. Curry in control, the company searched for to prevent what is known regulatory arbitrage, deciding it would typically decline license applications from banks attempting to escape condition regulatory enforcement actions, based on current and former regulators.
Yet underneath the Trump administration, the company lately granted permission towards the Bank of Tokyo, japan-Mitsubishi UFJ, a large Japanese bank which was fined $250 million by New You are able to State’s financial regulator inside a sanctions-breach situation in 2013, and arrived at a $315 million settlement when accused individually of “misleading regulators.”
Inside a letter to Mr. Noreika’s office, the brand new You are able to regulator complained the agency had granted the applying without input concerning the bank’s condition regulatory problems, based on a duplicate from the letter.
Before Mr. Noreika became a member of the company, that bank was certainly one of his clients.
Inside a statement, a company spokesman clarified that “Mr. Noreika observed a self-enforced recusal within this matter.” The spokesman added the agency “had sufficient information to find out the applicant met the factors for conversion” which had placed the financial institution “under substantively identical enforcement orders” to 1 still essentially in New You are able to.
The softer approach is spilling in to the ratings that banks receive in the agency, an important way of measuring their compliance with federal rules. Recently, the company revised its procedures for downgrading a bank’s Community Reinvestment Act rating, a four-tiered look at whether a financial institution discriminates against borrowers and just how well it meets the loan requirements of low-earnings neighborhoods in areas it serves.
The company had formerly downgraded some banks two levels at any given time, however a footnote inside a new manual states the insurance policy isn’t to reduce a bank’s rating by “more than a single rating level.”
The brand new policy also recommended that downgrades might be prevented altogether, emphasizing the agency must “fully think about the corrective actions taken with a bank.” When the bank has fixed its behavior, the manual stated, “the ratings from the bank shouldn’t be decreased exclusively in line with the information on the practice.”
For banks, a higher rating isn’t just an item of pride: A minimal it’s possible to scuttle merger plans.
The comptroller’s office has subtly altered that calculus. This month, the company issued another manual proclaiming that a minimal Community Reinvestment Act rating shouldn’t inherently block a bank’s intends to merge or expand. A minimal rating, the manual stated, “is not really a bar to approval of the application.”
Wells Fargo, that was downgraded two levels through the agency in Mr. Curry’s final days, would take advantage of the shift. Its executives will also be poised to achieve personally from another new effort: The company is trying to accelerate the vetting of bonuses to departing Wells Fargo executives, based on people briefed around the matter. Wells Fargo was susceptible to scrutiny from the extra compensation due to a scandal relating to the opening of countless fraudulent accounts.
Your time and effort could allow executives to have their payouts sooner, however the agency cannot act alone. The instalments should also be accepted by another bank oversight agency, the government Deposit Insurance Corporation, or F.D.I.C.
Inside a speech on Tuesday, the F.D.I.C. chairman, without naming the comptroller’s office, cautioned in regards to a moving back of rules underneath the new administration.
“The danger is the fact that changes to rules could mix the road into substantial weakening of needs,” stated the chairman, Martin J. Gruenberg, a holdover in the Federal government.
The comptroller’s office’s approach also diverges from those of the customer Financial Protection Bureau. Under an hour or so following the consumer bureau unveiled the ultimate form of rules to control the pay day-lending industry, that charges triple-digit annual rates of interest on short-term loans, the banking regulator effectively required the alternative route. It rescinded guidelines, adopted under Mr. Curry, that managed to get more difficult for banks to provide similar loans associated with checking accounts. The customer bureau’s rules still stand.
“In time because the agency issued the guidance, it is obvious in my experience that it is hard for banks for everyone consumers’ requirement for short-term, small-dollar credit,” Mr. Noreika stated at that time.
It wasn’t the very first collision between your comptroller’s office and also the consumer bureau, that has been brought by Richard Cordray, an Federal government holdover who stated on Wednesday he could leave this month. In This summer, right after the customer bureau adopted a guide that will let consumers band together at school-action lawsuits against banking institutions, Mr. Noreika requested Mr. Cordray to obstruct the rule’s publication, quarrelling that people of his staff needed additional time to judge whether or not this threatened the security and soundness of banks.
Mr. Noreika’s request echoed his former clients’ concerns. He became a member of the company in the law practice Simpson Thacher & Bartlett, where he symbolized banks now controlled through the Office from the Comptroller from the Currency.
Once Mr. Otting gets control, Mr. Noreika may go back to the non-public sector. Since the Trump administration hired him like a short-term “special government worker,” he may soon have the ability to represent clients prior to the agency, staying away from the tougher limitations that appointees confirmed through the Senate face.
He didn’t, for instance, have to sign the ethics pledge that needs Senate-confirmed appointees to avoid lobbying their former agencies for 5 years. A company spokesman stated that for just one year, Mr. Noreika wouldn’t talk to or appear before agency staff people using the intent of influencing them “on account of anybody seeking official action.”
Mr. Noreika has adopted the ethos and messaging of Mr. Trump’s administration. He looks after a red “Make America Great Again” hat in the office, based on two visitors. A hat with similar slogan continues to be observed in an area in the F.D.I.C. he keeps like a board member, surroundings which are otherwise empty.
FRANKFURT — The Ecu Central Bank started dismantling on Thursday a decade’s price of emergency measures that helped to help keep the eurozone from disintegrating throughout the economic crisis.
The bank’s action, following a meeting of their Governing Council, highlights the eurozone economy’s astonishing renaissance. However it may also expose weaknesses over the region — and possibly even provoke a brand new bout of monetary discord.
That’s the difficulty the central bank faces. Nobody knows without a doubt what uncomfortable surprises may lurk if this begins the entire process of so-known as tapering — removing the simple money that made it feasible for banks to lend and governments to gain access to despite investors had largely deserted them throughout the worst from the downturn.
The financial institution stated on Thursday it would hold its benchmark rate of interest steady in a historic low of 0 %, but provided a timetable for moving back purchases of presidency and company debt, a kind of virtual money-printing referred to as quantitative easing.
It absolutely was buying 60 billion euros, or about $70 billion, of these bonds each month, and can scale that to €30 billion per month for nine several weeks, beginning in The month of january. Which was consistent with analysts’ expectations.
Since early 2015, the financial institution has utilized recently produced money to purchase bonds along with other assets more vital than €2 trillion — an amount roughly comparable to the annual economic creation of India.
As that tide of money recedes, the risks that lurked underneath the surface can come into view. Their email list is lengthy. For just one, Italian banks continue to be laden with bad loans. Italy’s public debts are excessive the country spends 4 % of their gdp just having to pay interest.
Elsewhere, property prices the german language metropolitan areas like Frankfurt have risen a lot that there’s anxiety about a house bubble. Stock values are in record-high levels and could be past due for any correction. And Britain’s impending exit in the Eu will disrupt the economical order.
Consumers, companies and politicians have become familiar with — some would say spoiled by — low interest.
The central bank’s benchmark rate of interest is zero, and investors are extremely eager for safe places to place their cash that corporations like Daimler, the German automotive giant, have had the ability to issue bonds that don’t pay interest.
Low interest also have weakened the euro from the dollar along with other currencies, a benefit for exporters whose goods are usually cheaper for foreign customers consequently. The euro will likely rise as financial policy returns to normalcy.
The eurozone economy is humming, but which may be no insurance against another crisis. Such occasions have happened regularly because the world’s economic forces abandoned fixed forex rates in 1973, a current report by analysts at Deutsche Bank stated.
“It would therefore have a huge leap of belief to state that crises won’t continue being a normal feature of the present economic climate,Inches stated the report, which listed the withdrawal of central bank support as you component that might trigger the following meltdown.
To prevent provoking restored turmoil, the ecu Central Bank is moving very carefully.
The central bank’s Governing Council stressed inside a statement on Thursday it “stands ready” to improve the asset purchases as a result of worsening financial conditions or maybe inflation unsuccessful to increase.
“Ideally, the E.C.B. want to announce tapering as noiselessly as you possibly can,Inches analysts at Nederlander bank ING authored inside a note to clients.
Additionally, in the past low interest will stay in position for that near future. The central bank has stated it won’t begin raising rates until it’s stopped buying bonds, and just when the eurozone inflation rates are on the right track hitting the state target of two percent.
Still, some economists fear the finish of nearly free money can come like a shock for many less strong companies, free-spending consumers and excessively in financial trouble governments.
“The success of the relaxed financial course is obvious not at the start, however when it ends,” Jörg Krämer, the main economist of Commerzbank along with a critic of central bank policies, stated inside a note to clients. “There are lots of risks involved, and also the longer the E.C.B. delays before altering course, the higher they become.”
Correction: October 26, 2017
An early on version want to know , misstated the time where the European Central Bank tends to buy €30 billion of bonds each month. It will likely be for nine several weeks beginning in The month of january, not for any twelve month.
Senate Republicans voted on Tuesday to strike lower a sweeping new rule that will have permitted countless Americans to band together at school-action lawsuits against banking institutions.
The overturning from the rule, with V . P . Mike Pence breaking a 50-to-50 tie, will further release regulating Wall Street because the Trump administration and Republicans proceed to roll back Obama-era policies enacted within the wake from the 2008 financial crisis. By defeating the rule, Republicans are dismantling a significant effort from the Consumer Financial Protection Bureau, the watchdog produced by Congress as a direct consequence from the mortgage mess.
The rule, 5 years within the making, might have worked a significant blow to financial firms, potentially exposing these to a ton of pricey lawsuits over questionable business practices.
For many years, charge card companies and banks have placed arbitration clauses into the small print of monetary contracts to bypass the courts and bar individuals from pooling their sources at school-action lawsuits. By forcing people into private arbitration, the clauses effectively remove among the couple of tools that folks need to fight predatory and deceitful business practices. Arbitration clauses have derailed claims of monetary gouging, discrimination in vehicle sales and unfair charges.
The brand new rule compiled by the customer bureau, that was set to consider effect in 2019, might have restored the best of people to file a lawsuit in the court. It had been a part of a spate of actions through the bureau, that has cracked lower on collectors, a student loan industry and pay day lenders.
The arbitration rule has sparked a political fight which has adopted broader significance within the new administration. Republicans locked to the rule in an effort to cast the company like a player within the regulatory regime which was impeding business and also the economy. Soon after the rule was utilized in This summer, the U.S. Chamber of Commerce pointed into it like a “prime illustration of a company gone rogue.”
In recent several weeks, financial firms as well as their Republican allies in Congress mobilized to defeat the rule. Some lending institutions and community banks also considered in, lodging calls to lawmakers within their home states.
Underneath the Congressional Review Act, Republicans had roughly 60 legislative days to overturn the rule. The Home passed its very own resolution in This summer.
Wrangling the votes within the Senate was trickier. Within the days prior to the election, Senator Lindsey Graham, Republican of Sc, who backed legislation to safeguard military people from having into arbitration, stated he’d not support a repeal from the rule.
Searching to mind off a repeal, Democrats and consumer advocates branded your time and effort as a present to banking institutions like Wells Fargo and Equifax. Both companies, when confronted with corporate scandals, used arbitration clauses to try and quash legal challenges from customers.
The rule, Democrats contended, was just what was required to safeguard the legal rights of vulnerable borrowers. Regulators and idol judges, including some hired by Republican presidents, also have backed the positioning.
Class actions, they argue, are not only about how big the payouts, that are typically disseminate among a sizable group. They’re also about pushing companies to alter their practices. Large banks, for instance, needed to pay greater than $1 billion to stay class actions starting in 2009 that accused them of tweaking bank account policies to combine overdraft charges they could charge customers.
“Tonight’s election is a huge setback for each consumer within this country,” Richard Cordray, the director from the consumer bureau, stated inside a statement. “As an effect, the likes of Wells Fargo and Equifax remain liberated to break what the law states without anxiety about legal blowback using their customers.”
The election would be a win for any party which has battled to provide on its legislative priorities. Recently, Senator Mitch McConnell of Kentucky, most leader, unsuccessful to drum in the support required to overturn President Barack Obama’s signature healthcare law.
Mr. Graham and Senator John Kennedy of Louisiana broke using the Republicans to election from the measure. But Senator John McCain of Arizona, whom some Democrats had wished to sway, dicated to overturn the rule. The measure now heads to President Trump, who’s likely to sign it.
The customer bureau has abnormally broad authority — and autonomy from both White-colored House and Congress — to enforce existing federal laws and regulations and write new rules, such as the arbitration rule. That independence has rankled Republicans along with other federal agencies.
In June, the Treasury Department issued a study accusing the company of regulatory overreach and with Mr. Trump to achieve the to remove its director. Now, the department considered in on the arbitration rule, warning the regulation could release frivolous lawsuits, costing financial firms an believed $500 million in legal charges alone.
Republicans echoed individuals arguments on the ground from the Senate . Senator John Cornyn, Republican of Texas, rallied his peers, calling it “harmful regulation that imposes apparent costs while offering invisible benefits.” Such as the Treasury report, he contended that class actions “enrich lawyers” at the fee for consumers.
The controversy within the arbitration rule put Mr. Cordray, into a strange position of openly bickering along with other federal agencies.
Following the Treasury report, Mr. Cordray sent instructions to Treasury Secretary Steven Mnuchin faulting the department for misrepresenting the bureau’s work. Also, he expressed surprise in the report, noting that in his agency’s focus on arbitration, the Treasury “raised no issues or concerns using the bureau.”
The friction is intensifying as Mr. Cordray’s tenure in the bureau is ending. Hired by Mr. Obama this year to some five-year term, Mr. Cordray is broadly likely to step lower sooner to operate for governor in Ohio.
Mr. Trump will be liberated to install their own appointee, moving that’s likely to defang what’s been among the financial industry’s most aggressive regulators.
The arbitration rule, in lots of ways, encapsulated the bureau’s work: It had been independent and made to fill a regulatory gap. The rule was the very first major check up on arbitration since a set of Top Court decisions, this year and 2013, enshrined its prevalent use.
Emboldened by individuals decisions, increasingly more companies adopted the clauses. Today, it’s difficult to open a bank account, rent a vehicle, get cable service or check a family member into an elderly care facility without saying yes to mandatory arbitration.
As arbitration clauses made an appearance in millions of contracts, the customer agency was particularly mandated to review arbitration underneath the Dodd-Frank financial law this year. That effort culminated inside a 728-page report, released in March 2015, that challenged longstanding assumptions about arbitration.
The company discovered that once blocked from suing, couple of people visited arbitration whatsoever. And also the recent results for individuals who did were dismal. Throughout the two-year period studied, only 78 arbitration claims led to judgments in support of consumers, who got $400,000 as a whole relief.
The election late Tuesday left many Democrats dismayed.
Senator Sherrod Brown, Democrat of Ohio, stated the Republicans had tricked ordinary Americans. “By voting to consider legal rights from customers,” he stated, “the Senate voted tonight to affiliate with Wells Fargo lobbyists within the people we serve.”
In the treacherous world of finance, where investors confront biased advice, hidden costs and onerous fees, one investment giant seems to stand apart — the Teachers Insurance and Annuity Association, also known as TIAA. Calling itself a “mission-based organization” with a “nonprofit heritage,” TIAA has enjoyed a reputation as a selfless steward of its clients’ assets for almost a century.
“Our values make us a different kind of financial services organization, known for our integrity,” Roger W. Ferguson Jr., TIAA’s president and chief executive, says on the company’s website.
TIAA’s clients — educators, researchers and public service workers, many inexperienced with finance — consider the company a trusted partner without whom they could not hope to retire comfortably. That many customers revere it is not an overstatement.
Now, TIAA’s image as a benevolent provider of investment advice is in question. Several legal filings — including a lawsuit by TIAA employees with money under the company’s management, and a whistle-blower complaint by a group of former workers — say it pushes customers into products that do not add value and may not be suitable but that generate higher fees. Such practices would violate the legal standard that applies to retirement accounts and securities laws governing investment advisers.
And while TIAA contends that its operations are untainted by conflicts because its 855 financial advisers and consultants do not receive sales commissions, former employees, in interviews and in lawsuits, disagree. They say the company rewards its sales personnel with bonuses when they steer customers into more expensive in-house products and services.
The accusations are notable not only because TIAA tells clients that it puts them first, but also because it is one of the world’s larger money managers, with almost $1 trillion in assets under management. Today, five million people — most of them college professors, nurses, administrators, researchers and government employees — entrust their money to TIAA. (Formerly known as TIAA-CREF, the company changed its name to TIAA last year.)
Pushing customers into investment products to generate higher pay is a tactic as old as investing itself. And many Wall Street firms, JPMorgan Chase and Morgan Stanley among them, have gotten into trouble for aggressive sales practices. TIAA, by contrast, has been seen as a different animal from its Wall Street counterparts.
Asked about the allegations, Chad Peterson, a TIAA spokesman, said the company focuses exclusively on meeting its clients’ long-term financial needs and operates in “a highly transparent and ethical way.” He added that TIAA’s clients had benefited from their association with the firm.
“We’ve paid more than the guaranteed payouts to our fixed annuity holders every year for more than half a century,” Mr. Peterson said. “We’ve paid $394 billion in benefits to retired participants since 1918. Since our founding, our retired participants have never missed a payout from us — through depressions, wars and natural disasters.”
According to interviews with 10 former employees, TIAA management assigned outsize sales quotas to its representatives and directed them to meet the quotas by playing up customers’ fears of not having enough money in retirement and other “pain points.”
These allegations are echoed in a confidential whistle-blower complaint filed against the company with the Securities and Exchange Commission and obtained by The New York Times. The complaint, which is pending, contends that TIAA began conducting a fraudulent scheme in 2011 to convert “unsuspecting retirement plan clients from low-fee, self-managed accounts to TIAA-CREF-managed accounts” that were more costly. Advisers were pushed to sell proprietary mutual funds to clients as well, the complaint says. The more complex a product, the more an employee earned selling it.
Those who questioned management’s directives, the complaint says, were “processed out” of TIAA.
Under the legal standard applied to retirement accounts, these plans must be run solely in the interests of participants and beneficiaries. Fiduciaries are barred from engaging in transactions in the plan that would benefit them or other service providers like TIAA.
Clients must also be told of conflicts. Sales representatives who do not make this clear would violate the rules.
The former TIAA employees spoke on condition of anonymity for fear of retribution. TIAA makes employees sign an unusual agreement when they are hired stating that they will not make disparaging public comments about the company. The agreement, reviewed by The Times, gives TIAA the right to go to court to force compliance with its terms.
TIAA’s claims that it is more honorable than its competitors may have been true decades ago, but they no longer are, the former employees said.
Edward Siedle, founder of Benchmark Financial Services, is a former S.E.C. enforcement lawyer whose firm investigates improprieties at pension funds and recently helped a whistle-blower win the largest award from the S.E.C. after an enforcement action. Mr. Siedle has been briefed on the TIAA whistle-blower complaint and the former employees who brought it. “TIAA’s longstanding reputation as a low-cost provider doing well for educators and not driven by profit seems to be challenged by the revelations about how it’s doing business today,” he said.
A Broad Reach
In the early 1900s, teachers had no access to pensions that would help them live comfortably in retirement. So in 1918, the Carnegie Foundation donated $1 million to create the nonprofit Teachers Insurance and Annuity Association. Its goal was to “ensure that teachers could retire with dignity.”
For decades, TIAA grew by selling mostly insurance products, like annuities that guaranteed a steady stream of retirement income to their holders. Then in 1952, TIAA added the College Retirement Equities Fund, a global stock portfolio, to its offerings. The company, still operating as a nonprofit, became known as TIAA-CREF.
In most cases, clients invest with TIAA because their employers have hired it to administer their workers’ retirement accounts, known as 403(b) plans. Some 15,000 of the nation’s colleges, hospitals and other nonprofit organizations employ TIAA, its website says.
TIAA typically acts as record-keeper to these institutions, administering accounts that allow beneficiaries to choose among an array of mutual funds and annuities. When TIAA is a plan’s record keeper, its in-house funds are typically among the investments offered.
The company earns a record-keeping fee from these institutions, but it can also receive far more revenues when investors buy its mutual funds and annuities. Therein lies the potential for conflict at TIAA.
(I am a trustee of St. Olaf College, an institution that employs TIAA as record keeper on its retirement plans. The college recently asked other companies for information about their costs and offerings to help assess whether TIAA should stay on the job, but I will not be advising or making decisions on that matter.)
In 1997, Congress revoked the company’s nonprofit status as part of a tax reform bill, saying the status gave TIAA an unfair advantage over other companies. This meant TIAA’s costs would rise significantly because it would have to pay taxes.
Still, TIAA’s management said, the change would allow it to pursue investment opportunities it had not been able to engage in as a tax-exempt entity.
Former employees said the company became more aggressive in its sales practices when Herbert M. Allison Jr., a longtime Merrill Lynch executive, took over as TIAA’s chief executive in 2002. Around that time, the company was facing a major problem: Many clients withdrew their money when they retired from their universities or hospitals, moving their accounts to competitors like Vanguard, Charles Schwab and even higher-end brokerages like Merrill Lynch.
Eager to stanch the outflows, TIAA set up a registered investment advisory firm in 2004 that began offering private asset management services. In 2005, it created the Wealth Management Group, providing managed accounts for clients, for a fee.
The costs of these accounts were high compared with TIAA’s basic retirement accounts, and so was the pressure to sell them, according to the whistle-blower lawsuit. It notes that TIAA levied fees of 0.75 percent to 1.15 percent of assets under management. These charges came on top of the often hefty costs associated with TIAA funds or annuities.
“Had the retirement plan clients known of the advisers’ conflict of interest, they certainly would have been more wary and undertaken more investigation to discover the managed accounts the advisers were pushing were subject to substantially higher fees,” the complaint says.
Former employees contend that sales pressures at TIAA increased after it began losing university and other institutional accounts to competitors. Internally, TIAA executives had a name for this problem: Money in Motion. And in the fall of 2014, TIAA was reeling from the loss of the $1.3 billion University of Notre Dame account.
Losing such an account not only means no more record-keeping fees for TIAA, it also means the company will no longer generate money management revenues from participants’ purchases of in-house funds. That’s because TIAA’s funds are rarely offered to participants in plans that do not employ the company as record keeper.
After Notre Dame decided to move to Fidelity, a group of TIAA executives convened a conference call. Topic A: how to stop other accounts from walking out the door.
According to a tape provided by a former employee, one executive reported that the company had lost almost $6.4 billion in assets to competitors so far that year. When clients stopped taking part in a plan by retiring or changing jobs, the executive said, only half kept their money there.
Changing this dynamic was crucial, the executives agreed. And one urged the group to look at who was at risk of moving money out of TIAA accounts “and target those participants.”
Lawsuits Over Costs
In recent years, lawsuits directed at high-cost providers of retirement account services have shed light on the expenses associated with these arrangements. TIAA’s offerings have been among those drawing scrutiny.
In 2015, TIAA came under attack in a lawsuit brought by its own employees. This past May, TIAA agreed to pay $5 million to settle the plaintiffs’ allegations that the company breached its fiduciary duty by overcharging its workers in their retirement plan.
The plan offered only high-cost TIAA investment products, the lawsuit said. TIAA strongly denied the allegations but agreed to include investment options from outside fund managers in a settlement of the case; TIAA said it settled to avoid the costs and distractions of litigation.
On its website, TIAA says that its investment vehicles carry “some of the lowest costs in the industry.”
According to Morningstar, the average asset-weighted expense ratio on TIAA’s mutual funds was 0.32 percent in 2016. Although lower than the 0.57 percent mutual fund industry average, it is more expensive than a low-cost provider like Vanguard, whose average expense ratio was 0.11 percent in 2016.
TIAA also paid $19.5 million in 2014 to settle a suit brought by faculty members at St. Michael’s College in Vermont. They contended that TIAA failed to pay customers investment gains generated on their money during the time between the clients’ requests to move their funds from TIAA and the actual redemptions. TIAA had to pay $3.3 million in plaintiffs’ legal fees in that case.
TIAA denied liability in this case, saying the processing delays arose from a system upgrade.
Last February, a new lawsuit was brought by Melissa Haley, a participant in the Washington University Retirement Savings Plan. She alleged that TIAA had improperly charged her for loans she took out using her retirement account as collateral.
When a participant borrows against retirement-plan assets, most plan overseers take the loan out of the participant’s account. That way, the interest paid on the loan goes back to the borrower.
TIAA had a different practice, taking a loan from TIAA’s general account. That meant TIAA earned the difference between the interest it charged on the loan and the amount the participant earned on the money invested with TIAA. This enabled the firm “to earn additional income at the expense of retirement plan,” the lawsuit said, estimating that TIAA had generated $50 million a year from this practice nationwide.
Ms. Haley, who works as an administrator in cancer research at Washington University’s School of Medicine, said in an interview that she had been surprised when she learned about TIAA’s loan practices. “We’re all trying to do good things at the university, and you assume that anyone who is affiliated with it would be on the same path,” she said. “TIAA doesn’t have the values I thought it did.”
Mr. Peterson of TIAA said the company denies Ms. Haley’s allegations and will fight her suit vigorously. After the lawsuit was filed, TIAA told some college officials that loans should be funded from a participant’s account, calling that approach “a best practice.”
Even though TIAA stopped being a nonprofit organization in 1997, many of its customers might think it remains one. The company’s website ends in a .org rather than a .com and TIAA repeatedly refers to its “nonprofit heritage.”
Most of TIAA is for-profit. Teachers Advisors, for example, is an investment advisory firm that receives compensation from each in-house mutual fund it manages. Nuveen, a mutual fund company purchased by TIAA in 2014, is also run on a for-profit basis. So is EverBank, a Florida banking institution TIAA acquired in June.
According to TIAA’s 2016 annual statement, it generated $30.8 billion in income; $15 billion of that came from premiums collected on its insurance products. It earned almost $12 billion in investment income for its clients and $221 million in fees associated with TIAA’s investment management, administration and investment contract guarantees.
As these figures show, insurance is by far TIAA’s biggest business. It is a stock life insurance company whose shares are held by TIAA’s board of overseers. Most of the money it generates in its businesses is reinvested in the company or paid out to holders of TIAA annuities, the company says. Last year, it paid $3.8 billion to those holders.
TIAA’s employees were paid almost $1 billion in 2016, its filings show.
TIAA’s executive pay packages are comparable to those on Wall Street. During 2016, Mr. Ferguson, its chief executive officer, received $18.5 million in compensation, $5.1 million more than Michael Corbat, the chief executive of Citigroup, received.
Although TIAA contends that its sales representatives are not paid commissions, it does award bonuses to financial consultants and advisers if they sell in-house products or services. “There is an incentive for consultants to refer you to, or recommend that you open, TIAA accounts, products and services,” one TIAA filing with the S.E.C. said.
TIAA’s financial consultants who deal with institutions also receive bonuses based on their success in keeping clients’ money in house, the filing shows.
The company says in the filing that it addresses these conflicts of interest “by disclosing them to you.” While the lengthy document is sent to TIAA’s clients, they may not read it. The conflicts are not discussed in TIAA’s current private asset management brochure, dated March 2017, which says, “Your team always manages your portfolio according to your best interests.”
But the whistle-blower suit recounted a comment made by an executive at a convention of the company’s advisers in Orlando, Fla., in 2014. At the event, the lawsuit said, Carol Deckbar, then executive vice president and chief operating officer at the company, urged advisers to put more of their clients into in-house mutual funds. “Where do you think you get your bonuses?” the executive asked the crowd, according to the lawsuit.
Ms. Deckbar, now head of institutional investment and endowment products and services at TIAA, declined to comment through the TIAA spokesman. The spokesman also declined to comment.
To receive a bonus, the former employees said, they had to meet a series of production thresholds and qualitative measures. Advisers work against a performance scorecard each year.
According to internal and S.E.C. documents, TIAA advisers receive more money if they put clients into what the company calls complexity products — in-house offerings like annuities and life insurance as well as costlier private asset management accounts and fee-based Portfolio Advisor accounts.
This creates an incentive, former employees said, for sales representatives to push retiring professors or administrators to move money from their institutional plan, with annual costs of around 0.3 percent of assets under management, to managed accounts charging fees of 0.7 percent to 1 percent.
Mr. Peterson, the TIAA spokesman, declined to comment about these allegations. An S.E.C. filing by TIAA said that it has a transaction review process aimed at making sure that recommendations are appropriate for clients.
The employee scorecard represented both carrot and stick. If enough money was not being rolled into managed accounts, representatives’ bonuses could be cut at their supervisor’s discretion, a former sales representative said.
A new federal fiduciary rule, which will require financial advisers working on retirement accounts to put their clients’ interests first, states that firms like TIAA cannot use bonuses or other incentives that would “cause advisers to make recommendations that are not in the best interest of the retirement investor.” Along with many on Wall Street, TIAA argued against the fiduciary rule.
TIAA’s efforts to hold on to client assets and bring in new customers seem to be working. In 2016, the company said, its Institutional Financial Services unit attracted more than 261,000 new individual clients. The business group “beat their targets” in many areas.
But in June, the company changed the message it wanted its sales representatives to tell clients. A training update to wealth management advisers, provided to The Times from a current employee, came as the new fiduciary rule was being finalized.
It told advisers “to avoid accidentally implying that you may be acting as a fiduciary,” when having educational conversations with clients. They should avoid “referencing the participant’s best interest” and “discussions regarding TIAA’s not-for-profit heritage.”
WASHINGTON — With the election of President Trump, the nation’s consumer watchdog agency faced a quandary: how to shield the Obama-era institution from a Republican administration determined to loosen the federal government’s grip on business.
In the weeks after the election, Richard Cordray, the Democrat who leads the agency, the Consumer Financial Protection Bureau, directed his staff to compile stories from ordinary Americans thanking it for resolving complaints.
The anecdotes, which he solicited in an email to share with the Trump transition team, could provide a counterpoint to critics who had cast the agency as a regulatory scourge on the economy. And implicit in his request to employees was the belief that some accolades would come from parts of the country that helped elect Mr. Trump — evidence that the popularity of consumer safeguards transcends party divisions.
“There must be hundreds of such stories,” Mr. Cordray wrote in the email in November, which was obtained in a public records request. He added, “I can think of no better vindication” of the agency’s consumer relief efforts.
While many federal agencies have begun to loosen the reins on the companies they regulate, the Consumer Financial Protection Bureau, born out of the Dodd-Frank financial law in 2010, has taken the opposite course. Congress granted it unusually broad authority — and autonomy from the White House and Congress — to both enforce existing federal rules and write new ones, including issuing fines against financial companies.
Under Mr. Trump it has openly embraced its mission, cracking down on debt collectors, pushing out a major new financial rule on arbitration and pursuing a flurry of enforcement actions against payday lenders and others.
The approach, outlined in emails and other documents obtained through the public records request by The New York Times, comes as the Trump administration has taken an uncharacteristically low-key public stance toward the agency, a prominent blue holdout in a federal regulatory regime newly awash in red.
The White House’s restraint was based in part on a pragmatic assessment, according to people familiar with the strategy. At one point, contemplating a high-profile run on the agency, the White House examined polling data from political bellwether states, two people briefed on the matter said. The agency, they concluded, was too popular to pick a public fight with.
Republicans in Congress, who have vehemently opposed the agency since its creation, have also been unable to muster enough support to derail its work. Efforts to strike down a rule ordering new consumer protections on prepaid debit cards never made it to a vote in either the House or the Senate.
“The public does not share the G.O.P.’s ire toward the agency or its mission,” said Dean Clancy, a Tea Party activist who worked in the White House under President George W. Bush and is now a policy analyst who tracks actions of the consumer bureau. “It is an agency about protecting the little guy, and that is tough to oppose.”
The stories of gratitude rounded up by the agency’s staff for Mr. Cordray illustrated its appeal. Among them was a homeowner in Tennessee who got a disputed lien removed from a property, someone in Kentucky who got assistance warding off a debt collector pursuing a medical bill that had been paid, and a person in Pennsylvania who said the agency helped resolve a contested credit card debt.
That doesn’t mean the Trump administration and other opponents have given up on neutralizing the bureau’s work.
Administration officials have isolated the bureau from parts of the government that, under President Barack Obama, helped fulfill its mission. In public statements and documents, officials at the Justice Department, the Treasury Department and the Office of the Comptroller of the Currency have all turned a cold shoulder toward Mr. Cordray and his staff.
Lobbyists for the financial industry are working behind the scenes on efforts to dismantle some of the bureau’s signature initiatives, according to people directly involved in the plans. They include lawsuits to be filed in reliably conservative courts when new regulations are issued.
For now, though, it is mostly a waiting game. Mr. Cordray’s term as director expires next July, when he could be replaced with a sympathetic Trump appointee. That moment could come earlier as there is speculation that Mr. Cordray might resign — perhaps soon — to enter the Democratic primary for governor in Ohio.
“The industry will be very happy to see him out of there,” said Alan S. Kaplinsky, a lawyer with Ballard Spahr in Philadelphia, who represents financial institutions in matters before the bureau. “The people running that agency are definitely Obama people.”
The Trump administration, eager for Mr. Cordray’s exit, has compiled a list of successor candidates in the event of his early departure, according to three people with knowledge of the preparation. Yet Mr. Trump can fire Mr. Cordray only for cause, and such a move would most likely backfire by rendering Mr. Cordray a political martyr among Democrats — perhaps bolstering his chances of winning, should he enter the governor’s race.
Since Mr. Trump’s election, Mr. Cordray, 58, has counseled his roughly 1,600 employees to tune out the political noise.
“I encourage you to remain focused on doing your good work on behalf of consumers,” he said, according to a script for a call with employees in late November. “Keep calm and carry on.”
The agency was proposed by Senator Elizabeth Warren, Democrat of Massachusetts, when she was a Harvard professor, to serve as an advocate for consumers in their dealings with financial institutions. Mr. Cordray, who was working at the bureau as its enforcement chief, was made its first director in 2012 in a recess appointment by President Obama, which heightened the partisan rancor over the regulatory crackdown on Wall Street.
Financial executives and lobbyists offer mixed reviews of his tenure.
They describe Mr. Cordray as intelligent, pleasant and accessible, willing to meet with industry constituents and hear out their lobbyists. But they also consider him a “definitely ideological” — in the words of Richard Hunt, the chief executive of the Consumer Bankers Association, a banking trade group — leader of an agency that is structured like “a dictatorship.”
“Richard Cordray has gone above and beyond to take C.E.O.s to task on things that he had no jurisdiction over,” Mr. Hunt said.
Mr. Kaplinsky, the financial services lawyer, said Mr. Cordray had stifled innovation in the industry by being too rigid. “It is one guy who calls all the shots,” he said.
Mr. Cordray said he listened to and appreciated his opponents. “Sometimes you look at the critics and say, ‘Nobody else was telling me that, but you were,’” he said in a recent interview.
Since Mr. Trump has taken office, Mr. Cordray has faced increasingly personal attacks. A longtime critic, Representative Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee, has led the charge.
Mr. Hensarling championed the Financial Choice Act, a bill approved by the House in June that would reverse many Dodd-Frank regulations, including curbing the consumer agency’s oversight powers and allowing the president to fire its director more easily. A vote has not been scheduled in the Senate.
He also launched an investigation over a contentious new rule that allows consumers to band together in class-action lawsuits against financial firms. Mr. Hensarling later suggested that there were legal grounds to pursue contempt-of-Congress proceedings against Mr. Cordray, accusing him of inadequately responding to subpoenas in that investigation.
Separately, Mr. Hensarling has questioned Mr. Cordray’s political activities in Ohio and called for an investigation into whether he violated a federal law that prohibits federal employees from most political campaign activities.
Mr. Hensarling’s office declined an interview request. He told The Dallas Morning News this year that the bureau “is the single most unaccountable and powerful agency in the history of our republic.” He said Democrats had “set up a tyranny” when conceiving the agency as part of the Dodd-Frank legislation.
While industry lobbyists are more circumspect, they, too, are eager to remake the bureau. Some in the banking industry would like it to disappear, but others would prefer simply to reduce its autonomy.
“I hope we’ll rebalance the pendulum in a way that ensures honest market participants have clear rules,” said David Hirschmann, who heads the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, “and those who break laws are appropriately handled through strong, vigorous enforcement.”
Mr. Cordray says the criticism is a badge of honor. He believes the bureau’s work will have lasting ramifications.
The bureau has curtailed abusive debt collection practices, reformed mortgage lending, publicized and investigated hundreds of thousands of complaints from aggrieved customers of financial institutions, and extracted nearly $12 billion for 29 million consumers in refunds and canceled debts.
This week, it began mailing out refund checks totaling $115 million to 60,000 people who had paid illegal fees to Morgan Drexen, a debt settlement company that collapsed two years ago.
The agency has also rolled out the arbitration rule, and it has been putting the finishing touches on a rule that could reshape the multibillion-dollar payday lending industry.
“This has been an agency that has gotten people’s attention in a lot of ways,” Mr. Cordray said. “They have a lot of things they say about us.”
War on Multiple Fronts
Mr. Trump has not spoken publicly about the bureau, but in mid-June, he received his first major report from the Treasury Department about the financial system and its regulators.
The assessment included recommendations to chisel away at the Dodd-Frank law, which the Treasury Department, under Mr. Obama, helped draft.
The consumer bureau figured prominently in the report, garnering 340 references and a chapter devoted to the opportunity that Republicans have to change it.
“The C.F.P.B. was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to regulatory abuses and excesses,” the report said.
Mr. Trump, who ordered the report, has made his disdain for the Dodd-Frank law clear, issuing an executive order and presidential memos calling for a rollback of Obama-era regulations — and empowering Treasury Secretary Steven Mnuchin to take the lead in doing so.
“Treasury took the reins,” said Mr. Hirschmann, of the U.S. Chamber of Commerce, who participated in meetings with Treasury staff members as they researched the report. “I’ve been impressed.”
Similarly, the Justice Department under Mr. Trump has taken some shots at the consumer bureau. In one court case, it sided with a mortgage lender questioning the agency’s constitutionality.
The bureau had fined the lender, PHH Corporation, $109 million and accused it of illegal kickbacks. PHH denied wrongdoing, appealed the ruling, claimed the bureau was unconstitutional and asked a judge to shut it down.
At a hearing in May before the federal appeals court for the District of Columbia, a Justice Department lawyer argued alongside industry lawyers and said the bureau’s structure was unconstitutional and should be changed. The court is not expected to rule on the case for several months.
Other alliances within the federal government have deteriorated.
The consumer agency had been collaborating with the Department of Education on overhauling the $1.3 trillion student loan market to ensure that private companies collecting loan payments abided by consumer protections.
But soon after Betsy DeVos was appointed education secretary this year, the department scrapped much of that work. In particular, the department eliminated a requirement that federal student loan servicers adopt a simplified repayment disclosure form that the consumer bureau spent years developing.
Lobbyists are also feeling empowered by the change in administrations. Working on behalf of payday lenders, they have flooded the consumer agency with comments, more than a million in all, urging it to halt a proposed crackdown on the industry.
At some payday loan counters, customers were handed comment forms alongside their checks and urged to tell the bureau just how important payday lending was to their livelihood. Hundreds of thousands of those comments, often with nearly identical wording, poured into government databases.
So far, that push has not deterred the bureau. Within the agency, there is a mounting sense of urgency to get the final version of the payday rules out, according to two people familiar with the process. The new rules would represent the first time that the lucrative market — the payday industry collects $7 billion annually in fees — was directly regulated by the federal government.
The bureau’s rollout last month of its rule allowing class-action lawsuits in some arbitration cases has also rattled Wall Street, and is widely seen as a provocative stance against the prevailing political momentum in Washington.
Opponents of the rule have received an assist from the Trump administration. Keith Noreika, the acting currency comptroller, who serves as the chief bank regulator, asked Mr. Cordray to delay publication of the rule, saying his staff needed more time to review whether it posed a threat to the safety and soundness of the banks.
Mr. Cordray, in a response to Mr. Noreika, said the idea that class actions were a threat to the banking system was “plainly frivolous.” (He also said he had already sent the rule to the Federal Register for publication a week before he received Mr. Noreika’s letter.)
A challenge to the rule passed the House, but has stalled in the Senate. Senator Lindsey Graham, Republican of South Carolina, has said he would not back a repeal of the rule. Other Republicans are also wavering.
“Moderate Republicans don’t want to be painted as anti-consumer,” said Isaac Boltansky, the director of policy research at Compass Point, a research firm tracking the fate of the agency’s recent rules.
Correction: September 1, 2017
An earlier version of this article incorrectly quoted Richard Hunt of the Consumer Bankers Association. Mr. Hunt described Richard Cordray as “definitely ideological,” not as “doggedly ideological.”
Wells Fargo stated on Thursday that the internal overview of its potentially fraudulent accounts had uncovered as many as 3.5 million such accounts, some 1.4 million greater than it’d formerly believed.
The financial institution also elevated a brand new issue: unauthorized enrollments of consumers within the bank’s online bill payment service. Wells Fargo stated it had found 528,000 cases by which customers might have been registered without their understanding or consent, and can refund $910,000 to customers who incurred charges or charges.
“We will work difficult to ensure this never happens again and also to develop a better bank for future years,Inches Timothy J. Sloan, Wells Fargo’s leader, stated inside a written statement announcing the review’s results. “We apologize to everybody who had been injured.”
Wells Fargo touched off a scandal last September if this decided to pay $185 million to stay three government lawsuits within the bank’s development of potentially countless unauthorized customer accounts.
Wells Fargo has acknowledged that a large number of employees, attempting to meet aggressive sales goals, produced accounts in customers’ names without their understanding. Employees received bonuses for meeting the bank’s sales targets — and risked losing their jobs when they fell short.
At that time, the financial institution stated that 2.a million suspect accounts have been opened up from 2011 to mid-2015. The financial institution later expanded its review by 3 years and examined 165 million accounts which were produced from The month of january 2009 through September 2016.
That review switched in the additional accounts that might have been fraudulent — a virtually 70 % increase over Wells Fargo’s initial estimate.
The bank’s internal review has become complete, Mr. Sloan stated.
“We’ve cast a large internet to achieve customers and address their remaining concerns,” he stated.
In some instances, customers discovered the fraudulent accounts only if they incurred charges in it. Wells Fargo stated it’s compensated customers $seven million to refund individuals charges. Additionally, it decided to pay $142 million to stay class-action claims within the accounts.
The scandal within the accounts — and also the corporate culture that permitted these to go undetected for such a long time — toppled Wells Fargo’s leader and ignited an outcry from customers, lawmakers and regulators that, nearly annually later, continues to be roiling the financial institution. Several investigations through the Justice Department and condition attorneys general stay in progress.
Wells Fargo customers and former employees have stated they attempted greater than a decade ago to alert bank executives to misdeeds by branch bankers and managers. The organization made the decision to return simply to 2009 in the review because it didn’t have adequate data on prior periods, Mr. Sloan stated on the call with reporters.
Review Wells Fargo concluded on Thursday centered on retail accounts, and didn’t expand into other locations where the bank continues to be charged with wrongdoing, including incorrectly withholding refunds which were because of some vehicle loan customers and charging some customers for car insurance that they didn’t need. Wells Fargo has stated formerly it would refund customers who have been impacted by individuals actions.
The financial institution has additionally been charged with handling mortgages incorrectly by looking into making unauthorized changes towards the loans of borrowers in personal bankruptcy (so it has denied) and charging customers charges to increase applications it delayed (a problem the financial institution stated it’s searching into).