NEW YORK–The New York attorney general’s office said it has opened an inquiry into the lending practices that left thousands of immigrant taxi drivers in crushing debt as they purchased taxi medallions. The announcement follows a 10-month investigation by the New York Times that found fault with numerous parties, including credit unions and NCUA, in contributing to the crash of the taxi medallion market, where values have plummeted even as many were enriched in the process.
CUToday.info had extensive coverage of the Times’ findings here.
In addition to the state attorney general’s office, New York Mayor Bill de Blasio has ordered a separate investigation into the brokers who helped arrange the loans, the Times reported.
“The efforts marked the government’s first steps toward addressing a crisis that has engulfed the city’s yellow cab industry,” the Times said. “A handful of taxi industry leaders artificially inflated the price of a medallion — the coveted permit that allows a driver to own and operate a cab — and made hundreds of millions of dollars by issuing reckless loans to low-income buyers.”
Feeding the ‘Frenzy’
Added the Times, referring to its investigation, it found “regulators at every level of government ignored warning signs, and the city fed the frenzy by selling medallions and promoting them in ads as being ‘better than the stock market.’” Former NCUA Chairman Dennis Dollar was among those interviewed in the initial New York Times two-part investigation.
As CUToday.info has reported, the Times report noted the price of a taxi medallion soared to more than $1 million before crashing in late 2014, “which left borrowers with debt they had little hope of repaying. More than 950 medallion owners have filed for bankruptcy, and thousands more are struggling to stay afloat.”
In response to the Times reporting, the chairman of the New York Assembly’s banking committee, Kenneth Zebrowski, said his committee would hold a hearing on the issue; the City Council Speaker Corey Johnson said he was drafting legislation, and several other officials in New York and Albany called for the government to pressure lenders to soften loan terms, according to the Times.
Illegal Activity Investigated
Attorney General Letitia James will be seeking to determine if the lenders engaged in any illegal activity.
“Our office is beginning an inquiry into the disturbing reports regarding the lending and business practices that may have created the taxi medallion crisis,” the AG’s office said in a statement. “These allegations are serious and must be thoroughly scrutinized.”
Gov. Andrew M. Cuomo said through a spokesman that he supported the inquiry. “If any of these businesses or lenders did something wrong, they deserve to be held fully accountable,” the spokesman said in a statement.
de Blasio said the city’s investigation will focus on the brokers who arranged the loans for drivers and sometimes lent money themselves.
“The 45-day review will identify and penalize brokers who have taken advantage of buyers and misled city authorities,” the mayor said in a statement, as reported by the Times. “The review will set down strict new rules that prevent broker practices that hurt hard-working drivers.”
Credit Union Involvement
A half-dozen credit unions that specialized in taxi medallion loans have been shuttered and merged by NCUA in recent years, at a cost of nearly three-quarters-of-a-billion to the National Credit Union Share Insurance Fund. Numerous other credit unions purchased taxi medallion loan participations.
One former credit union exec, Alan Kaufman, ex-CEO at Melrose Credit Union, is facing civil charges that allege he was personally enriched with Super Bowl trips and other perks to influence loan decisions.
The Times reported one former CU CEO, Robert Familant, the former head of Progressive Credit Union, made about $30 million in salary and deferred payouts during the bubble, including $4.8 million in bonuses and incentives in 2014, the year it burst.