In the thousands of words written about New York’s taxi medallion crisis, experts have rightly blamed everything from predation to greed. Since an explosive City Council hearing last week, others have cited outdated rules and blatant hypocrisy.
But what has generally flown under the radar is that this mess has the same smell of the subprime mortgage crisis from a decade ago.
The similarities are eerie. The mortgage crisis resulted from financial misbehavior and neglected oversight, which combined to hurt working people the most. Bad loans were knowingly given to folks who’d struggle to pay them, which helped artificially raise home prices and create a bubble in the economy.
The parallels continue. It wasn’t just that banks targeted folks who couldn’t afford homes. Communities of color were specifically taken advantage of, as were immigrants, including undocumented ones. No doubt that plan involved going after people who couldn’t read English and didn’t understand the terms they were agreeing to. Borrowers were pressured with irresponsible incentives to walk into risky deals, leading to debt that was easy to obtain but impossible to pay off.
The medallion crisis took the worst of these tactics and added to them. Cab drivers were forced to forfeit legal rights, subjected to massive fees and found themselves in interest-only deals—all as conditions to acquire medallions they thought they could later sell to retire on. One commentator summarized it nicely when she said the crisis was a mixture of “poorly informed borrowers, falsified loan documents … prepayment penalties and other abusive features as well as out-right fraud.”
Another fact which can’t be ignored is how lenders fared during this meltdown. It’s simply unthinkable that, while nearly 1,000 drivers went bankrupt and others took their own lives, bankers, credit union execs and their lobbyists enjoyed lives of exorbitant luxury. Granted, some credit unions were seized because of their bad loans, but the general picture is a group of financial institutions getting rich at the expense of defenseless people.
As with the housing crash, the damage will play out for years. Driver debt is still piling up, vulnerable people are still being targeted and, as my colleague Councilman Ritchie Torres showed, more instances of abdicated responsibility will likely be found.
We cannot just sit idle, hoping that victims recover and that institutions don’t repeat their sins. Probes by Torres, Attorney General Letitia James and others are critical, but more must be done to hold bad actors accountable. Pending these investigations, city and state forces should prosecute illegal lending where it happened and remove public officials who knowingly abdicated their responsibilities to protect drivers.
The state should also pass legislation punishing lenders who discourage legal consultation, and compel financial institutions to provide better disclosures of borrowers’ rights and information about language-interpretation services. Finally, the City Council must put in place rules that prevent future internal warnings from being ignored and study the feasibility of driver reparations.
It also matters that we correctly identify the culprits. This mess was created by people in the financial world motivated by bad incentives and unmoved by empathy. Blaming the drivers is victim-shaming, and fingering ride-hail companies (who must nonetheless be well-regulated) is beside the point. We know who inflated the bubble, and they must pay a price. We must also honestly recognize the failures of government officials. From regulatory agencies to elected officials, it’s vital that we hold ourselves to a higher standard.
The mortgage crisis led to a wave of reflections and change. White papers and columns were written. Government hearings and academic conferences were held. Lawmakers at all levels of politics pushed for reforms and passed many of them.
New York’s medallion crisis must create a similar response. Now more than ever, inaction is not an option.
The Road to Justice for New York City Yellow Cab Drivers
Mouhamadou Aliyu was sold the American Dream. But that dream was built on a lie.
Aliyu emigrated from his native Cote d’Ivoire to the U.S. in 1993, initially finding work in a warehouse. He started driving a yellow taxicab back in 2001, for one of the city’s infamous yellow taxicab fleets, with their extravagant and sometimes criminal owners. Fleet operators have accumulated hundreds, even thousands of the city’s licenses to operate a curbside hailing vehicle. A piece of tin affixed to the hood of each car, the licenses are more commonly called taxi medallions. The city estimates there are 3,423 taxi drivers who own their own medallions — and Aliyu is one of them.
The taxi medallion system has always had a hard cap. When it was created in 1937, there were 16,900 medallions. Due to economic conditions at the tail end of the Great Depression, the number soon fell to 11,787, and it stayed there until 1996. Today there are 13,587 taxi medallions. The artificial cap turns each into a tradable asset that drivers, fleet owners, and nowadays even hedge funds buy and sell on the open market.
When the city decides to increase the number of medallions, it holds an auction, as it did in October 2004, when Aliyu purchased his. There was no such thing as Uber or Lyft at the time. Like most medallion owner-drivers, he coughed up his life savings for a down payment, $20,000 in his case, and took out a loan for $331,472 to finance the purchase. But little did he or any of the 116 other successful bidders know that the prices they’d paid were already being arbitrarily inflated thanks to predatory lenders and a city with a $3.8 billion budget shortfall, as the New York Times reported earlier this year. New York City taxi medallion prices would peak at more than $1 million in 2014 before crashing — hard. In June 2019, one taxi medallion sold for just $125,000.
Add years of declining revenue for taxi drivers because of new competition from ride-hailing apps — which didn’t exist when many of these taxi drivers bought their medallions — and you’ve now got a crisis. Yellow taxicab drivers got loans to purchase medallions at prices that were artificially inflated far beyond their actual asset value, and now drivers’ ability to earn enough to cover those loans is degrading by the week. An estimated 95 percent of yellow taxicab drivers are immigrants, like Aliyu, who led a group of 50 or so drivers in chants last week at a July 11 city hall rally to demand New York City make right by the drivers it helped push into taking out predatory, hyper-inflated loans.
“My dream was just to be a medallion owner,” Aliyu says. “Even if I sell it now I won’t get enough money to pay off what I owe.”
In response to the New York Times multi-part exposé on the taxi medallion loan crisis, the city initiated a 45-day investigation, during which city staff from three agencies reviewed 5,513 pages of records, conducted and analyzed a survey of taxi drivers who own their medallions, and held outreach events in each of the city’s five boroughs. Authorities have made one arrest so far — of a notorious debt collector charged with pretending to be a city law enforcement official to intimidate yellow cab drivers.
Policy recommendations coming out of the city’s investigation focus on preventing a future crisis — such as new standards for the brokers who facilitate the buying and selling of taxi medallions; a new required taxi medallion loan disclosure statement clearly outlining loan terms and costs; free legal aid for negotiating any refinancing of taxi medallion loans; and a new webpage listing every licensed taxi medallion broker in the city with a list of any violations issued to each.
While applauding the recommendations from the city’s investigation, advocates want the city to go further, calling for debt forgiveness for drivers who are underwater on their taxi medallion loan — in other words, they owe more on their taxi medallion loan than the medallions are currently worth on the open market.
“The city has a moral obligation, the banks have a legal obligation,” Bharavi Desai, executive director of the New York Taxi Workers Alliance, said at the July 11 rally. “We’re sick and tired of owner-drivers and their families to be the only ones bearing the brunt of this bubble bursting.”
If you think the taxi medallion crisis sounds similar to the subprime mortgage crisis, you’re right.
“There are many analogies between this crisis and the home mortgage crisis, including the fact that the people culpable have largely not paid a price, while the regular people are the ones whose lives have been ruined,” says New York City councilmember Mark Levine, who represents the 7th district, in Northern Manhattan, who joined the yellow taxicab drivers in calling for the city to take action on debt forgiveness for underwater taxicab drivers.
Levine initially started looking more into New York City’s taxi medallion loan crisis because of who gave out the lion’s share of these loans — a few credit unions that specialized in taxi medallion lending. In a previous life, he helped establish Neighborhood Trust Federal Credit Union, serving parts of Manhattan that overlap with what is now his council district.
“I felt that I had some expertise to offer, but eventually it became a moral cause as I learned more about the scale of this scandal and the city’s role in it,” Levine says.
One possible response to the subprime mortgage crisis could also apply to the taxi medallions — loan modification. The New York Taxi Workers Alliance would like to see underwater taxi medallion loans modified by reducing the original loan amount as well as the monthly payment amounts.
In its survey of drivers, the city found medallion owners are making monthly loan payments between $2,500 and $4,000. Aliyu currently pays $2,452 a month. Working with its members, the alliance determined that it would like to see monthly taxi medallion loan payments capped at $900.
There are two ways loan restructuring could happen. Levine says the city, along with other players like the New York Attorney General’s Office or the New York Department of Financial Services, could join forces to put pressure on the industry to restructure the loans themselves. The councilmember’s preference would be to restructure most of the underwater taxi medallion loans this way.
“The lenders are going to have to take a hit, but the truth is, it’s prudent of them to have more accurate accounting for the values of these loans and wise lenders I think are already starting to see that,” Levine says.
It’s more than just credit unions at this point who must be pressured. The National Credit Union Administration, the federal regulatory agency for credit unions, shut down two of the largest taxi medallion lenders last year after they suffered heavy losses due to the collapse of the medallion market, which means that the agency itself now has ownership of many underwater taxi medallion loans.
Nearly two-thirds of drivers surveyed by the city said their loans were issued by a credit union, including one of the credit unions taken over by the NCUA. Of surveyed drivers whose loans were now with the NCUA, only nine percent told city investigators that the agency had taken steps to lower monthly loan payments or reduce their loan principal.
The second option to restructure loans would be for the city, by itself or perhaps in partnership with an external agency, to buy the most distressed underwater taxi medallion loans and do the restructuring itself.
“The city, if it bought these loans, could refinance on fair terms,” Levine says. “The city already has many loans on its books through the Housing Development Corporation or the NYC Economic Development Corporation.”
The office of Mayor Bill De Blasio has dismissed the idea of taking any action along those lines, telling the New York Times that a bailout that would cost upwards of $13 billion. Asked about it again last week, the Mayor said the city could not afford a bailout for yellow cab owner-drivers.
But Levine says that $13 billion figure is bogus. It’s not every one of the 3,423 estimated yellow taxicab owner-drivers who are underwater on their taxi medallion loans. Along with the NY Taxi Workers Alliance, Levine’s calling for the city to purchase only the most distressed medallion loans made to owner-drivers — not fleet owners (or anyone with a taxi-related criminal conviction). And he’d still prefer lenders themselves restructure most of the underwater loans.
The city estimates an average debt per owner-driver of $500,000 — not far from the alliance’s own estimate of $600,000. And the alliance isn’t asking for total loan forgiveness — it wants the owner-drivers to be paying $900 a month. At current interest rates of around four percent, for a thirty-year mortgage, that would come out to restructuring each taxi medallion loan to about $189,000 — which is roughly the current market value of a taxi medallion.
So let’s say there are 1,000 yellow taxicab owner-drivers with underwater mortgages that lenders aren’t willing to restructure, meaning the city would have to purchase those loans. Assuming the alliance’s $600,000 in debt per owner-driver, $411,000 in loan forgiveness per driver would amount to $411 million. Compare that to the $855 million the city earned by selling taxi medallions and collecting taxes on private sales, as reported by the New York Times.
There is more than just an analogy to the home mortgage crisis — there is precedent. In the aftermath of the home mortgage crisis, when Fannie Mae and the Department of Housing and Urban Development started auctioning off distressed and usually underwater mortgages to the highest bidder, New York City chipped in more than a million dollars alongside a range of partners to buy some of those mortgages.
Under that arrangement, the nonprofit Center for New York City Neighborhoods stepped up to serve as a coordinating body to conduct the transaction and restructure the loans, a multi-year process.
After hearing Center for NYC Neighborhoods Executive Director Christie Peale testify at a June 24 city council hearing in which she compared the taxi medallion loan crisis to predatory subprime mortgage lending, Levine believes the city could set up a similar arrangement for yellow cab owner-drivers.
“It won’t be a simple solution, but it’s achievable,” Peale tells Next City. “It’s critical that the city get the lenders to the table to establish a framework for loan modifications, and to work towards a debt reduction solution.”
Yandex’s joint venture with Uber to buy smaller Russian taxi firm’s assets
Russian internet company Yandex’s joint venture with Uber has agreed to buy Russian taxi firm Vezet’s core business, further cementing Yandex’s role as a major online taxi operator in Russia and neighbouring countries.
Taxi, ride sharing and car sharing services have been booming in Russia over the last couple of years after a number of foreign and domestic players invested in online platforms for such businesses.
Yandex, widely known as “Russia’s Google” for its array of online services from internet search to email and taxi reservations, said on Monday that the joint venture, MLU B.V., has agreed to acquire the Vezet Group’s IP and call centres in Russia.
Yandex was a rival of Uber in Russia’s fragmented taxi market until 2017 when they joined forces and set up MLU, with Yandex becoming the controlling shareholder.
MLU now operates across Russia, Armenia, Azerbaijan, Belarus, Georgia and other countries and has expanded into other businesses including food delivery.
Yandex is even considering an initial public offering (IPO) of MLU.
Yandex said MLU will issue new shares to help pay for the Vezet assets, representing up to 3.6% of the issued share capital of the company and up to $71.5 million in cash. It did not give more details of how much MLU will pay for the assets but said the companies expect to close the deal by the end of 2019.
Yandex.Taxi dominates the taxi market in Russia, but there is still room for other players as demand for taxis is growing with the entry of user-friendly online platforms, Gevork Vermishyan, chief executive of Russia’s second biggest phone operator Megafon, told Reuters in an interview published earlier this month. Megafon invested in Yandex.Taxi’s smaller rival, CityMobil, last year.
INVESTMENT IN RUSSIAN REGIONS
Vezet group operates in 123 Russian cities under the Vezet, Taxi Saturn, Fasten and Red Taxi brands. Other big online competitors of Yandex.Taxi in Russia include private taxi company Maxim and Israeli Gett <IPO-GTGE.L>.
Under the deal, MLU plans to invest about 8 billion roubles ($127 million) in the Russian regions over the next three years, Yandex said in a statement.
Yandex will own 56.2% of MLU after the deal and Uber 35.0%, while about 5.3% will be held by employees under the MLU equity incentive plan.
Yandex’s shares were up 0.5% in early trade in New York.
“If the deal takes place, I think it will be positive for Yandex, because the company is strengthening its position in the taxi market and increasing market share,” Vladimir Bespalov from VTB Capital said.
Russia’s Mail.ru Group, which gave a loan to Vezet last summer and has a right to veto the deal, said it had not yet agreed to Yandex.Taxi acquiring Vezet assets.
“Consent has not been given as of now, therefore we consider the announcement premature,” the company said. Vezet said the deal did not violate the terms of the loan.
“We intend to strictly comply with all our agreements with Mail.ru Group,” Vezet’s press service said. Vezet’s management will stay in place and business will continue as usual.
“The deal refers to assets in Russia. We also have business in Czech Republic and Kazakhstan,” Vezet said.
NCUA Is Refusing to Negotiate With Taxi Drivers Facing Financial Ruin: NYC Mayor
The NCUA is failing to negotiate with beleaguered taxi drivers who borrowed money from credit unions that have been taken over by the agency, New York City Mayor Bill de Blasio charged this morning.
Mayor de Blasio released the findings of a 45-day review of the taxi industry by several city agencies that followed a New York Times investigation that found that many taxi drivers had been victimized by loan brokers who helped them through the loan process.
The report did not recommend, as some city officials had hoped, that New York provide financial assistance to the drivers.
The report details the financial hardships suffered by the taxi drivers, many of whom are immigrants.
In many cases, medallion brokers helped drivers negotiate loan details, but often failed to adequately explain the terms of the loans.
“For current drivers, the largest single issue they face is an unaffordable level of debt,” the report stated. “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.”
The report stated that a driver survey found that “credit unions taken over by the NCUA are often the least willing to work with drivers struggling to afford their monthly loan payments.”
NCUA officials had no immediate comment on the report.
By comparison, the report found that a bank, Signature Bank, which had the second-highest percentage of taxi loans, was the most likely to renegotiate driver loans.
Monthly loan payments total between $2,500 and $4,000 a month, the report said, adding that many drivers need assistance in trying to renegotiate their loans.
The value of taxi medallions purchased by drivers has plunged, largely as a result of the growth in ride-sharing services.
Two New York City credit unions, Melrose Credit Union, and LOMTO Federal Credit Union were taken over by the NCUA largely as a result of their heavy investment in taxi medallions. A third, Bay Ridge Federal Credit Union, was involved in an emergency merger.
The agency reported last year that the Share Insurance Fund lost more than $780 million last year, since credit unions that assumed control of the failing institutions did not assume control of the taxi loans.
Of those responding to requests for information about their loans, nearly two-thirds of the drivers responding said they had loans with a credit union that had been taken over by the NCUA.
More than a quarter of the borrowers said they had done business with Melrose.
Melrose required high monthly loan payments and had the second-highest interest rate—an average of 4.5%
The report calls for tighter regulations governing medallion brokers and states that city officials must continue to advocate on drivers’ behalf to renegotiate more affordable loan terms.
Senate Minority Leader Charles Schumer (D-N.Y) charged in May that lackluster oversight by the NCUA led to credit unions taking advantage of borrowers.
And the agency’s Inspector General said that the agency needs to tighten its supervision of credit unions with a high concentration of one type of loan, such as taxi loans.
NCUA Chairman Rodney Hood responded to Schumer, saying that the proliferation of ride-sharing services caused the crisis in the taxi loan business. However, the agency has agreed to tighten supervision of credit unions with high concentrations of one type of loan.
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