Inquiries Into Reckless Loans to Taxi Drivers Ordered by State Attorney General and Mayor - The New York Times
▻https://www.nytimes.com/2019/05/20/nyregion/nyc-taxi-medallion-loans-attorney-general.html
May 20, 2019 - The investigations come after The New York Times found that thousands of drivers were crushed under debt they could not repay.
The New York attorney general’s office said Monday it had opened an inquiry into more than a decade of lending practices that left thousands of immigrant taxi drivers in crushing debt, while Mayor Bill de Blasio ordered a separate investigation into the brokers who helped arrange the loans.
The efforts marked the government’s first steps toward addressing a crisis that has engulfed the city’s yellow cab industry. They came a day after The New York Times published a two-part investigation revealing that 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.
The investigation also found that 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.”
The price of a medallion rose 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.
The findings also drew a quick response from other elected officials. The chairman of the Assembly’s banking committee, Kenneth Zebrowski, a Democrat, 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.
The biggest threat to the industry leaders appeared to be the inquiry by the attorney general, Letitia James, which will aim 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,” an office spokeswoman 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.
Lenders did not respond to requests for comment. Previously, they denied wrongdoing, saying regulators had approved all of their practices and some borrowers had made poor decisions and assumed too much debt. Lenders blamed the crisis on the city for allowing ride-hailing companies like Uber and Lyft to enter without regulation, which they said led medallion values to plummet.
Mr. 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. “The review will set down strict new rules that prevent broker practices that hurt hard-working drivers.”
Four of the city’s biggest taxi brokers did not respond to requests for comment.
Bhairavi Desai, founder of the Taxi Workers Alliance, which represents drivers and independent owners, said the city should not get to investigate the business practices because it was complicit in many of them.
The government has already closed or merged all of the nonprofit credit unions that were involved in the industry, saying they participated in “unsafe and unsound banking practices.” At least one credit union leader, Alan Kaufman, the former chief executive of Melrose Credit Union, a major medallion lender, is facing civil charges.
The other lenders in the industry include Medallion Financial, a specialty finance company; some major banks, including Capital One and Signature Bank; and several loosely regulated taxi fleet owners and brokers who entered the lending business.
At City Hall, officials said Monday they were focused on how to help the roughly 4,000 drivers who bought medallions during the bubble, as well as thousands of longtime owners who were encouraged to refinance their loans to take out more money during that period.
One city councilman, Mark Levine, said he was drafting a bill that would allow the city to buy medallion loans from lenders and then forgive much of the debt owed by the borrowers. He said lenders likely would agree because they are eager to exit the business. But he added that his bill would force lenders to sell at discounted prices.
“The city made hundreds of millions by pumping up sales of wildly overpriced medallions — as late as 2014 when it was clear that these assets were poised to decline,” said Mr. Levine, a Democrat. “We have an obligation now to find some way to offer relief to the driver-owners whose lives have been ruined.”
Scott M. Stringer, the city comptroller, proposed a similar solution in a letter to the mayor. He said the city should convene the lenders and pressure them to partially forgive loans.
“These lenders too often dealt in bad faith with a group of hard-working, unsuspecting workers who deserved much better and have yet to receive any measure of justice,” wrote Mr. Stringer, who added that the state should close a loophole that allowed the lenders to classify their loans as business deals, which have looser regulations.
Last November, amid a spate of suicides by taxi drivers, including three medallion owners with overwhelming debt, the Council created a task force to study the taxi industry.
On Monday, a spokesman for the speaker, Mr. Johnson, said that members of the task force would be appointed very soon. He also criticized the Taxi and Limousine Commission, the city agency that sold the medallions.
“We will explore every tool we have to ensure that moving forward, the T.L.C. protects medallion owners and drivers from predatory actors including lenders, medallion brokers, and fleet managers,” Mr. Johnson said in a statement.
Another councilman, Ritchie Torres, who heads the Council’s oversight committee, disclosed Monday for the first time that he had been trying to launch his own probe since last year, but had been stymied by the taxi commission. “The T.L.C. hasn’t just been asleep at the wheel, they have been actively stonewalling,” he said.
A T.L.C. spokesman declined to comment.
In Albany, several lawmakers also said they were researching potential bills.
One of them, Assemblywoman Yuh-Line Niou of Manhattan, a member of the committee on banks, said she hoped to pass legislation before the end of the year. She said the state agencies involved in the crisis, including the Department of Financial Services, should be examined.
“My world has been shaken right now, to be honest,” Ms. Niou said.
Brian M. Rosenthal is an investigative reporter on the Metro Desk. Previously, he covered state government for the Houston Chronicle and for The Seattle Times. @brianmrosenthal
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