NEW YORK–A new report on this city’s troubled taxi medallion industry has found two-thirds of the medallion loans that have many borrowers in financial straits were issued by credit unions, and that those same CUs—in some cases represented by NCUA–are “least willing” to work with borrowers on new repayment plans.
But the report from New York City Mayor Bill de Blasio’s office also discovered something not previously well known: many of the taxi drivers who are deeply in debt borrowed for more than just their medallions, tapping the equity they once had in the medallions to purchase homes or buy a car.
The report found more than half of drivers saying they are struggling to pay monthly bills, and with many drivers having already declared bankruptcy, more than a quarter said they are also considering doing so.
The report was released by de Blasio’s office as part of a “45-day review” of how taxi medallion loans were brokered and financed, and it reinforces earlier reports that the city and lenders, including credit unions, encouraged reckless borrowing practices that have left hundreds of people, many of them immigrants, deeply in debt. At least a dozen have committed suicide after the value of their medallions plunged for a number of reasons, including the emergence of ride-sharing services.
The city’s investigation followed a detailed two-part investigation by the New York Times.
Three-Quarters of a Billion Dollars
Losses on taxi medallion loans have driven a half-dozen credit unions into conservatorship, liquidation or merger. In total, the losses have cost the National Credit Union Share Insurance Fund (NCUSIF) approximately three-quarters of a billion dollars.
As CUToday.info reported here, at the same time the new report is being released, city officials remain divided over various proposals to bail out taxi medallion loan-holders who are deeply upside down in their loans.
The new report is based on an investigation that reviewed the behavior of the New York City Taxi and Limousine Commission (TLC), the NYC Department of Consumer and Worker Protection (DCWP) and the NYC Department of Finance (DOF) as well as the practices of businesses licensed by TLC to facilitate the purchase and sale of taxi medallions.
In addition, more than 300 borrowers were also interviewed.
The Top-Line Findings
Among the top-line findings in the investigation by the mayor’s office, which included a review of more than 5,500 pages of documents:
- While TLC rules require Brokers to prepare documents summarizing loan and purchase agreement terms, as well as disclose any interests they may have in medallion transfers, instances were discovered where documents were missing or incomplete. Transfers were also discovered where Brokers failed to disclose in writing an interest in the transaction.
- The investigation revealed that in many cases the required documentation and disclosures Brokers provide their clients include insufficient or unclear information.
- Although Brokers frequently help drivers negotiate a loan for the medallion purchase, Brokers fail to adequately explain the terms of these loans to their clients. The investigation found a majority of surveyed drivers who used a Broker reported they did not have a clear understanding of their loan agreements.
- For current drivers, the largest single issue they face is an unaffordable level of debt. “The average median debt owed by surveyed drivers is approximately $500,000, well above the prices medallions regularly sell for today on the secondary market. Because of loan refinancing, drivers who purchased years ago at lower prices also often carry significant debt.”
- 51% of surveyed drivers stated they struggle to pay their monthly bills and 26% stated they are considering bankruptcy. However, only 15% of surveyed drivers indicated their lender has lowered the monthly payments or reduced the loan principal.
- Nearly two-thirds of surveyed drivers reported their loan is held by a credit union or was issued by a credit union subsequently taken over by NCUA.
- Survey results support prior reports from drivers that credit unions taken over by the NCUA are “often the least willing to work with drivers struggling to afford their monthly loan payments. Of surveyed drivers whose loans were issued by Melrose or LOMTO, the two largest institutions taken over by the NCUA, only 9% reported the NCUA had taken steps to lower monthly loan payments or reduce their loan principal.”
- The NYC Sheriff investigated allegations of illegal medallion repossessions. As a result of its investigation, on July 2, 2019, the Sheriff arrested Anthony Medina on four separate counts of Criminal Impersonation of a NYC Marshal. For the past three years and across four boroughs, Medina allegedly impersonated a NYC Marshal to help him seize taxis, medallions and rate cards from owners who were allegedly in default.
The report from the Mayor’s Office offers a number of recommendations, including:
- TLC should amend its rules to include new, enforceable standards to ensure Brokers act in the interests of their clients, regularly report to TLC interests they have in TLC licenses and in businesses serving TLC licensees, provide clear information on any interest a Broker may have in a transfer, and submit to TLC written agreements for all Broker-provided services.
- Moving forward, Brokers should be required to complete for their clients a loan disclosure statement providing a summary of material terms of any loans a driver secured to finance the purchase. “The form will provide a simple, easy-to-read summary of the total amount borrowed, total cost to pay off the loan, monthly payments and interest rates, the term of the loan agreement, and the amount of time required to pay off the loan. As nearly 95% of taxi drivers are immigrants, TLC will translate these new forms into the City’ top 10 non-English languages.”
- To further increase transparency for prospective buyers and sellers, TLC will create and maintain on the TLC website a list of enforcement actions against brokers. TLC will also post Brokers’ annual disclosures of interests in TLC licenses and TLC-related businesses as well as a plain language medallion transfer guide for those who choose to buy or sell a medallion without employing the services and costs of a Broker.
- ·Although the TLC and the city have no regulatory oversight or control over lending practices, the city should “continue working to influence federal and state officials to use their powers to persuade credit unions, banks and other lenders to right-size existing loans and institute policies to prevent unsustainable lending practices occurring in the future.”
The report further recommends the city continue its efforts to expeditiously launch the Driver Assistance Center previously announced by Mayor Bill de Blasio. The center should have financial counselors available to help review each driver’s finances individually, discuss their available options, and help drivers determine which option best fits their needs.
The report said the center should also expand on the services currently offered through DCWP’s Office of Financial Empowerment by providing credit/finance professionals who can analyze individuals’ financial needs and then advocate for them with lenders to modify outstanding loans to make them more affordable, including reduced loan amounts and reduced monthly payments.
During the time researchers spent with drivers, the majority was spent discussing the driver’s “financial struggles,” the report states. The report found all drivers reported they are struggling to cover their expenses, with loan payments typically between $2,500 and $4,000 each month.
“Nearly all drivers stated they need help seeking loan modifications. Three drivers stated their lender offered to write off their loan balance in exchange for a one-time $200,000 cash payment,” the report notes. “Although in each case the one-time payment and subsequent write-off represented a significant savings compared to the total debt owed, the drivers did not have access to the necessary funds to accept the lender’s offer. Numerous drivers indicated they were considering bankruptcy, with one driver having already filed for bankruptcy protection. Finally, five drivers stated their medallions had been repossessed by their lender.”
The report found although Brokers were heavily involved in helping their clients secure lending for the purchase of a medallion, very few reported that their Broker helped them understand the terms of the loans. Among the biggest issues has been poor English-language skills, the report states.
Refinancing Plays Role
The report said drivers reported a median purchase price of $340,000, with a total median debt owed today of nearly $500,000, meaning the median amount currently owed is 48% greater than the original median medallion price. Of all surveyed drivers, only 35% report they owe less today than they originally borrowed.
“These trends are likely heavily driven by refinancing, as 79% of respondents confirmed they had borrowed against the equity in their medallion for other purposes such as purchasing a family home (48%), buying a car (35%), or paying for college or education (17%),” the report states.
According to data provided by drivers, there is little relationship between the number of years a driver has owned their medallion and their current loan balance. “Medallion owners who have owned their medallion for a long period of time do not have smaller loan balances, as may be expected, but as previously stated, 79% of owners borrowed against the equity in their medallions and are still making payments towards those loans.”
The Top Lenders
As noted earlier, nearly two-thirds of drivers reported their loans were issued by a credit union or by a credit union subsequently taken over by the NCUA. Almost a quarter of drivers reported their loans were issued by a consumer bank. Approximately 7% of drivers reported their loans were issued by Medallion Financial, a private lender heavily focused on taxi medallion loans. And approximately 3.5% of drivers reported their loans were issued by a lender owned in whole or in part by a Broker. Of the 10 lenders most frequently used by drivers responding to the survey, the former Melrose Credit Union, Signature Bank, and the former LOMTO Credit Union hold/held the greatest market share amongst this group, collectively used by 53% of surveyed drivers.
“Melrose Credit Union, which financed loans for almost a third of the survey respondents, charges high monthly loan payments and the second-highest interest rate, with an average of 4.5%,” the report states. “LOMTO Credit Union, which also has a significant market share, is reported to have an average interest rate of 4.6%. Bay Ridge Credit Union, with only a 3% market share, also reportedly charges higher-than-average monthly loan payments. These three credit unions – Melrose, LOMTO and Bay Ridge – are noteworthy as each was taken over by the NCUA and each were the subject of a recently-released NCUA audit which found, among other issues, unsound lending practices and an overconcentration in medallion loans.These findings support prior reports from drivers to TLC that credit unions taken over by the NCUA are often the least willing to work with borrowers struggling to afford their loans.”
A Bank Leads Way
The report said that when asked to describe their current financial situation, 51% of drivers indicated they are struggling to pay their monthly bills and 26% said they are considering bankruptcy.
“Although lenders have indicated in meetings with TLC that they are now working with drivers to modify loans, only 15% of drivers reported that their lender has reduced their monthly payment or reduced the total debt owed,” the report states. “Analysis of the survey suggests…Signature Bank, which is the second most used lender among surveyed drivers, may be working with drivers most frequently. Signature has the highest rate of respondents stating that the bank had worked favorably with them and has some of the lowest reported monthly payments and interest rates amongst the top 10 lenders (as per the previous table). Those institutions reported least likely to work with borrowers appear to be First Jersey Credit Union, Medallion Financial, Mega Funding, Progressive Credit Union, Capital One, LOMTO Credit Union and Melrose Credit Union.
The report recommends the city of New York “continue to advocate on behalf of drivers for lenders and the NCUA to right-size loans to amounts that can be supported by a driver’s income. The city must also continue to engage those state and federal banking regulators beyond the NCUA who oversee the banks and private lenders with large medallion loan portfolios.”
The full report can be found here.