Slideshow 10 who had a rough year in 2017

Published
  • December 20 2017, 10:59pm EST
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10 who had a rough year in 2017

Move over, Wells Fargo, another prominent financial firm has taken your place as the poster child for bad behavior.

Equifax, the credit reporting agency whose primary responsibility is to protect consumers’ personal information, became public enemy No. 1 this year when it revealed that thieves hacked into its database and stole the personal information — birth dates, credit card data, Social Security numbers — of some 145 million consumers. As bad as the breach was, CEO Rick Smith made it significantly worse by waiting more than a month to make it public.

What happened next was predictable: Outraged lawmakers summoned Smith to Capitol Hill for a public flogging and Smith, who had been CEO of Equifax since 2005, was ultimately out of a job. By any measure, that’s a bad year.

As for Wells Fargo, while it took a number of steps to right the wrong of its phony-accounts scandal, its reputation remains severely damaged. Moreover, its current CEO, Tim Sloan — who replaced John Stumpf last year — continues to be dogged by the perception that he’s too much of a Wells Fargo insider to meaningfully change the bank’s culture. At a separate, equally hostile grilling on Capitol Hill, Sen. Elizabeth Warren, a Massachusetts Democrat, told Sloan he “should be fired” for not reining in the bank’s abusive practices.

Also included in American Banker’s annual “10 who had a rough year” list: the founder of a high-flying fintech who was ousted for sexual misconduct; a longtime community bank CEO; the authors of a discredited research report on peer-to-peer lending; and the federal regulatory agency bankers love to hate.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau had its worst year since it was created by the Dodd-Frank Act in 2010.

The Senate overturned its rule banning mandatory arbitration clauses in financial contracts, and House lawmakers are threatening to repeal its small-dollar, payday lending rule. The Government Accountability Office effectively struck down the agency's 2013 guidance that put indirect auto lenders on the hook for unintentional discrimination by auto dealers.

Meanwhile, the agency has been locked in an ugly partisan battle for control of the agency since President Trump named White House Budget Director Mick Mulvaney its as acting director last month.

Deputy Director Leandra English sued the president to block Mulvaney's appointment, alleging she is the rightful acting director, having been named by former Director Richard Cordray, who resigned Nov. 25.

Democrats have since lined up to fight Mulvaney, who has vowed to embed the agency with Republican political appointees. The dramatic legal fight continues with a hearing on Dec. 22.

Mulvaney has also launched a temporary freeze on all rulemakings and hiring, and is likely contemplating shrinking the CFPB’s staff and budget.

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Tim Sloan, CEO, Wells Fargo

What was supposed to be a year of redemption for Wells Fargo and its CEO, Tim Sloan, turned out to be a near-repeat of 2016, minus the hefty fines.

For those who haven’t been keeping score, the bank has in recent months: admitted to charging improper and often unnecessary fees to mortgage borrowers; acknowledged forcing collision insurance on car-loan customers who didn’t need it; uncovered an additional 1.4 million accounts opened without customers’ permission, bringing the total to 3.5 million; and been sued by the Navajo Nation for using high-pressure sales practices to coerce members into opening accounts they didn’t want.

To be sure, Wells Fargo has taken a number of steps to right the wrongs of a phony-account-opening scandal that cost it some $190 million in fines and restitution and led to the ouster of Sloan’s predecessor, John Stumpf.

Nonetheless, Sloan continues to be dogged by the perception that he’s too much of a Wells Fargo insider to bring about cultural change. At a drubbing, er, hearing, on Capitol Hill in September, Sen. Elizabeth Warren, a Massachusetts Democrat, said that Wells’ problems will never be fixed as long as Sloan as in charge. “At best you were incompetent. At worst you were complicit. And either way, you should be fired,” she said.

Savers

Savers got the short end of this year’s rate hikes.

The Federal Reserve in 2017 continued increasing rates at a steady pace, announcing hikes of 25-basis-point in March, June and December. Banks responded each time by boosting loan prices —and padding their net interest income — but have so far kept deposit rates mostly unchanged.

That may be on the verge of changing. Big companies and wealth management clients have begun negotiating more favorable rates on their deposits. With the central bank projecting three additional rate hikes next year, it remains to be seen if everyday customers will soon get a better shake.

Mike Cagney, ex-CEO, SoFi

This was the year when sexual misconduct scandals brought down men in a wide range of high-profile industries. Mike Cagney is perhaps the most prominent example from the financial services sector.

He started Social Finance with some of his fellow Stanford Business School students in 2011. In the beginning, the company only offered student loans, but it did so in pursuit of a broad relationship with a coveted set of customers — graduates of elite universities.

That business plan gave SoFi an edge in the crowded online lending field. In 2015 the company raised $1 billion from the Japanese conglomerate SoftBank, and in 2016 Cagney was named one of American Banker’s "10 who had a good year."

His fall came fast. In August 2017, a former SoFi employee alleged in a lawsuit that he had witnessed female managers being harassed, reported the misconduct, and was subsequently fired. The following month, amid additional allegations that SoFi had a culture that was hostile to women, the CEO stepped down.

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Banks in Puerto Rico

It could take years for Puerto Rico and its banking sector to recover from Hurricane Maria’s destruction.

Three months after the Category 4 made landfall, roughly one-third of the island is still without power. Though nearly 90% of bank branches have reopened, as well as nearly 1,600 ATMs, according to a government website tracking the recovery, some are relying on diesel-powered generators and could be for some time.

And longer-term challenges remain. During the third quarter, banks on the island boosted their third-quarter loan-loss provision to account for storm-related losses. Those losses could increase down the road, as short-term loan-deferral periods begin to expire.

Additionally, outmigration is a lingering worry, as more than 470,000 residents are projected to relocate to the U.S. mainland in the next two years. The population of Puerto Rico has been shrinking for years, as the island’s economy has struggled with a decadelong recession, as well as more than $70 billion in government debt.

One potential silver lining: The process of rebuilding damaged buildings and infrastructure could provide a bit of a stimulus to the local economy, experts say.

Rusty Cloutier, ex-CEO, MidSouth Bancorp

MidSouth Bancorp’s decision in April to fire CEO Rusty Cloutier, along with his son, came as a bit of a surprise. After all, the colorful Cloutier is a well-respected industry spokesman, previously chairing the Independent Community Bankers of America and serving on the Federal Reserve Bank of Atlanta’s nominating committee. And there was a strong belief that he had been grooming his son, Troy, to succeed him one day.

Energy exposure — or, perhaps more accurately, a reluctance to aggressively tackle problem oil and gas loans — did him in. At the time of his removal, energy loans made up 18% of MidSouth’s overall portfolio, and nearly one-fifth of those were past due. Last year’s profit was off 64% from 2014, the year before oil prices began a prolonged swoon.

The board, led by former NFL quarterback Jake Delhomme, decided that a change in leadership was needed to address the energy exposure and raise the capital required to purge the portfolio. Cloutier still stands to gain from the change; he is among MidSouth’s biggest shareholders and would benefit if new management rights the ship and improves the company’s stock price.

Cleveland Fed researchers

In November, the Federal Reserve Bank of Cleveland published research that seemed to undermine claims about the virtuous consumer impact of the online lending industry.

The study, titled “Three Myths about Peer-to-Peer Loans,” found the sector’s customers typically end up in deeper debt and have lower credit scores than similarly situated consumers who abstain.

But as soon as the study was published, questions arose about the data upon which its conclusions rested.

In fact, the company that provided the data said that it did not distinguish between peer-to-peer loans, so-called fintech loans and traditional personal loans.

Just nine days after the research was published, the Cleveland Fed retracted it.

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Rick Smith, ex-CEO, Equifax

The data breach at Equifax was far-reaching and revealed serious flaws in the credit agency's ability to protect consumers’ privacy. But CEO Rick Smith’s response to the cyberattack was a lesson in how not to respond to a PR crisis and may have cost him his job.

Thieves hacked into Equifax databases during the summer and stole Social Security numbers, birth dates, addresses and credit card numbers, affecting 145 million consumers. But the breach, which could cause trouble for consumers for years, wasn't disclosed until September.

Lawmakers launched a withering attack on Equifax in the wake of the incident, arguing that the company should have been more serious about its role as the custodian of sensitive personal financial information.

Further, Smith was lambasted for taking more than a month to make public the news of the breach, and it looked worse for him when news outlets reported that three top executives had sold shares in the company weeks before the breach was made public.

Later in September, the 57-year-old Smith announced his early retirement from the company he had led since 2005. Equifax withheld Smith’s severance and a 2017 bonus.

The fallout continues. The Independent Community Bankers of America sued Equifax in November to recoup money lost by small banks.

Office of Financial Research

When the Office of Financial Research was created by the Dodd-Frank Act in 2010, it was hailed as a data research agency that could help regulators spot future financial crisis and stop them before they happened.

But instead the agency has ended up being largely quiet, releasing reports on risks that are often ignored.

This year, however, it got noticed — just not for the right reasons. OFR Director Richard Berner abruptly announced his departure last month despite having a year left on his term. The Government Accountability Office, meanwhile, accused the OFR of manipulating information that it turned over to congressional auditors and providing misleading answers during an investigation.

The Treasury Department, which oversees the OFR, has pledged to slash its budget and staff significantly in 2018 and there are doubts that it can continue to operate as an independent arm.

Kevin Cummings, President and CEO, Investors Bancorp

After years of rapidly growing assets and earnings, in large part via strategic acquisitions, Investors Bancorp in Short Hills, N.J., is ending 2017 on an uncharacteristically discordant note.

Earlier this month, the $25 billion-asset Investors announced it would shutter six branches and trim approximately 5% of its workforce — about 100 people — to reduce expenses by up to $12 million. Costs have climbed as the bank, led by President and CEO Kevin Cummings, works to meet the terms of an informal agreement with regulators that require it to beef up its compliance with the Bank Secrecy Act strengthen its defenses against money laundering.

Those concerns had already forced Cummings to terminate Investors’ planned acquisition of the $1.1 billion-asset Bank of Princeton in January.

The $154 million deal, which would have been its fifth acquisition since 2012, would have marked Investors’ first big move into the Philadelphia market.