How New York Could Respond to the Taxi Medallion Loan Crisis

After a of thempart The New York Times investigation into predatory lending practices for taxi medallions has demarcated how industry executives and government agencies have participated in, encouraged or ignored subprime lending, calls to action have sprung up – sometimes the same officials or agencies who had slept on the switch.

Various deceptive or abusive lending practices have contributed to the rise and precipitous fall of taxi medallions in New York City. Medallions value $ 200,000 in 2002 rose to over $ 1 million in 2014, before collapsing less than $ 200,000. The bubble was inflated by loans made without down payment, demands that loans be repaid in three years or extended with inflated interest rates, and interest-only loans that forced borrowers to give up their legal rights. and give up a large portion of their income. Borrowers – usually low-income immigrant drivers – were left behind when the bubble burst, an event the taxi industry has long blamed primarily on the rise of app-based phone calling services like Uber and Lyft. While the boom in app-based hail appeal has contributed to the now struggling taxi industry, revelations from The Times show government officials – including the Taxi and Limousine Commission who acted like a “cheerleader” for medallion sales – ignored the warning signs.

Since Sunday, when The Times’ first article was published, New York Attorney General Letitia James has announcement investigating the business and lending practices that “may have created” the crisis, New York Mayor Bill de Blasio announcement a joint investigation by the TLC, the Department of Finance and the Department of Consumer Affairs into the brokers who helped organize the loans, Senator Chuck Schumer call for an investigation into the credit unions involved in the loan, and members of the New York City Council and State Legislature, and New York City Comptroller Scott Stringer, have call for hearings and legislation to resolve the issue.

The various proposals put forward so far are unlikely to fully address the damage to many locket owners, some experts say. The Times investigation found that since 2016, more than 950 taxi drivers have filed for bankruptcy, and thousands more are still suffering from crippling loans. This is combined with a chain of taxis and other professional drivers who have committed suicide in the past year and a half.

Some of the proposed solutions have focused on preventing the type of reckless lending practices exhibited for taxi medallions. Stringer called on state lawmakers to close a loophole that allows lenders to classify their loans as trade deals – as opposed to consumer loans, which offer more protections to borrowers. A bill presented Last week, Senator Jessica Ramos would also establish a program to help owners of medallions unable to obtain financing, refinancing or restructuring of an existing loan through a loan loss reserve. State Senator James Sanders and Assembly Member Kenneth Zebrowski, who chairs the state legislature’s banking committees, declined to comment.

But classifying loans for lockets as consumer loans might not be appropriate, said Bruce Schaller, transportation expert and former deputy commissioner at the New York City Department of Transportation. “I think the difficult question with individual drivers is that they are in business, they plan to make money from their increased medallion prices. Does he have to have the same protections as someone who takes out a mortgage on a house, who is presumed to be very vulnerable? He asked. “It might be, but (the drivers) are also in a business in a way that the potential owner is not.”

TLC told the Times that it is the responsibility of bank examiners to monitor lending practices, while the state’s Department of Financial Services has said it oversees some of the banks involved, but often defers to inspectors federal. “The TLC is gravely concerned that poor lending practices have harmed taxi drivers and raised these concerns publicly,” Acting Commissioner Bill Heinzen said in an emailed statement. “Banks and credit unions are regulated by federal agencies which have substantial supervisory powers that the TLC does not. TLC has taken steps under its regulatory authority to help owners and drivers by reducing regulatory burden and working with city council to limit the number of rental vehicles on the road. We pushed the banks to restructure loan balances and payment amounts to reflect real travel income. “

Seth Stein, spokesperson for de Blasio, also spoke of the interest in preventing risky lending practices. “We are deeply concerned about predatory lending in the medallion business,” Stein wrote in an email. “While TLC does not exercise any direct regulatory oversight over lenders – this is squarely within the purview of federal regulators – we continue to seek all avenues to help owners and operators make ends meet. We’ve halted medallion sales, set a cap on app-based rental vehicles, and urge federal regulators to do more, too. “

But the remedies at the federal level may not be realistic, according to David King, a planning professor at Arizona State University, who specializes in transportation and land use planning. “There doesn’t seem to be an appetite for what would be reasonable lending standards. Reasonable standards that would include verifiable guarantees or values ​​based on something other than invented dollar amounts, ”King said, adding that he does not see these changes being made under the current administration. “The real estate bubble of 11 years ago, I think it was a sufficiently national concern that inspired a certain movement in Washington. While I think something like an asset bubble in New York, just like an asset bubble in a region, will not be enough to stimulate federal legislation.

Schaller said that while lending regulatory fixes could be beneficial in preventing this type of crisis in other industries, the city can now take steps to alleviate some pain. “The real question is, if the city now decides that it was part of the fraud, then it should pay back the money,” he said. “It’s one thing to close a loophole, it’s another to decide that you have to pay restitution. “

City Councilor Mark Levine, who has been working on such legislation for nearly a year, agreed the city must shoulder its responsibilities. “There has been a lot of attention to the entire industry of lenders and brokers pushing these loans onto drivers in a way that was not transparent and really cheated them, and may very well constitute a kind of legal fraud, “he said. “But the city itself also bears the responsibility, because we were selling medallions with the aim of generating income for the city and we were promoting and inflating them in a way that I think masks the real risks. that the drivers were taking. And, most blatantly, we had a series of sales in 2014, when it was quite clear that we were heading for lower prices, because by that time app-based competitors had emerged and there there were other challenges.

Levine’s vision to immediately help drivers still suffering from unsustainable loans would involve the city acquiring the loans from lenders who cannot or will not be flexible with borrowers, and then forgiving the debts. While the bill has yet to be introduced, the idea is to partially fund the buyout by imposing a surcharge on app-based ridesharing companies like Uber and Lyft. Levine’s office is still trying to confirm that city council would have the power to collect this type of surcharge. If not, they would encourage action to be taken in Albany.

But, as the Times investigation into the issue revealed, much of the damage to drivers and locket owners has already been done, including the hundreds of locket owners who have filed for bankruptcy. “If someone paid $ 800,000 for a locket loan and paid off part of it, and had their house repossessed, now Mark Levine says, ‘Well, we’ll just pay off whatever’s left hanging there. -bas “,” said Schaller. “If I was on the losing side of this market, I would say I want my $ 800,000 back. “

The idea of ​​a buyout, Levine admitted, is not a perfect solution, but it is one that he believes can help the thousands of locket owners stranded right now. “It would not solve these kinds of horrible and horrible difficulties,” he said, referring to the owners who have confiscated assets and suffered other losses.

If there is one advantage to the stories relayed in The Times of medallion owners financially devastated by bad debt and the failing taxi industry, it may be that this is a cry for help. action – even if it comes too late for some. “It had a dramatic impact on the Council’s interest in finding solutions,” Levine said of the Times investigation’s huge punch. “It gives new impetus to this effort, which is good, because it’s complicated, and it’s going to take a political push to get there.” The revelations in this article made this more likely.

Janet E. Fishburn