Investigations into reckless loans to taxi drivers ordered by state attorney general and mayor
The New York attorney general’s office said on Monday it opened an investigation into more than a decade of lending practices that have left thousands of immigrant taxi drivers in crushing debt, while Mayor Bill de Blasio ordered a separate survey of brokers who helped arrange loans.
The efforts marked the government’s first steps towards resolving a crisis that has engulfed the city’s yellow cab industry. They came a day after the New York Times published a in two parts investigation revealing that a handful of taxi industry executives artificially inflated the price of a medallion – the coveted license that allows a driver to own and operate a taxi – and made hundreds of millions of dollars in providing reckless loans to low-income buyers.
The investigation also found that regulators at all levels of government were ignoring the warning signs, and the city fueled the frenzy by selling medallions and promoting them in advertisements as “better than the stock market.”
The price of a locket rose to over $ 1 million before collapsing in late 2014, leaving borrowers with debts they had little hope of repaying. More than 950 locket owners have filed for bankruptcy and thousands more are struggling to stay afloat.
The findings also prompted a quick reaction from other elected officials. Assembly banking committee chairman Kenneth Zebrowski, a Democrat, said his committee would hold a hearing on the issue; city council chairman Corey Johnson said he was drafting legislation; and several other officials in New York and Albany called on the government to pressure lenders to relax loan terms.
The biggest threat to industry leaders appears to be the investigation by Attorney General Letitia James, which will look into whether lenders have engaged in illegal activity.
“Our office is initiating an investigation into disturbing reports of lending and business practices that may have created the taxi medallion crisis,” a spokesperson for the office said in a statement. “These allegations are serious and must be carefully examined. “
Governor Andrew M. Cuomo said through a spokesperson that he supported the investigation. “If any of these companies or lenders have done something wrong, they deserve to be held fully accountable,” the spokesperson said in a statement.
Lenders did not respond to requests for comment. Previously, they had denied wrongdoing, saying regulators had approved all of their practices and some borrowers had made bad decisions and taken on too much debt. Lenders blamed the city for allowing rideshare companies like Uber and Lyft to enter without regulation, which they say caused the medallions to plummet.
Mr de Blasio said the city’s investigation will focus on brokers who have arranged loans for drivers and sometimes loaned the 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 establish tough new rules that prevent broker practices that harm hard-working drivers.”
Four of the city’s largest 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 investigate the business practices because it was complicit in many of them.
The government has already shut down or merged all nonprofit credit unions involved in the industry, saying they were involved in “dangerous and misguided banking practices.” At least one credit union executive, Alan Kaufman, the former chief executive of Melrose Credit Union, a major medallion lender, faces civil lawsuits.
Other industry lenders include Medallion Financial, a specialty finance company; some large banks, including Capital One and Signature Bank; and several owners and brokers of poorly regulated taxi fleets who have entered the lending business.
At City Hall, officials said Monday they were focusing on how to help the roughly 4,000 drivers who bought medallions during the bubble, as well as the thousands of longtime owners who were encouraged to refinance their loans to withdraw more money during this period.
City councilor Mark Levine said he was drafting a bill that would allow the city to buy medallion loans from lenders and then write off much of the borrower’s debt. He said the lenders would likely agree as they are anxious to leave the business. But he added that his bill would force lenders to sell at discounted prices.
“The city made hundreds of millions by increasing sales of extremely expensive lockets – until 2014, when it was clear those assets were on the verge of dwindling,” Mr. Levine, a Democrat, said. “We now have an obligation to find a way to provide 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 summon the lenders and pressure them to partially cancel the loans.
“These lenders have too often dealt in bad faith with a group of hard-working and unsuspecting workers who deserve much better and have yet to receive any legal action,” Stringer wrote, who added that the state should fill a loophole that has allowed lenders to classify their loans as business transactions, which have more flexible regulations.
Last November, in the middle of a wave of suicides among taxi drivers, including three owners of medallions with crushing debt, the council created a task force to study the taxi industry.
On Monday, a spokesperson for the speaker, Mr Johnson, said members of the task force would be appointed very soon. He also criticized the Taxi and Limousine Commission, the municipal agency that sold the medallions.
“We will explore all the tools we have at our disposal to ensure that in the future, TLC protects owners and operators of medallions from predatory players, including lenders, medal brokers and fleet managers,” said M Johnson in a statement.
Another city councilor, Ritchie Torres, who heads the council’s oversight committee, revealed on Monday for the first time that he had tried to launch his own investigation since last year, but had been blocked by the taxi commission. “The TLC didn’t just sleep at the wheel, it actively obstructed,” he said.
A spokesperson for TLC declined to comment.
In Albany, several lawmakers have also said they are researching potential bills.
One of them, Congresswoman Yuh-Line Niou of Manhattan, a member of the banking committee, said she hoped to pass legislation before the end of the year. She said state agencies involved in the crisis, including the Ministry of Financial Services, should be reviewed.
“My world has been rocked right now, to be honest,” Ms. Niou said.