Two of the taxi credit unions, Melrose Credit Union and LOMTO Federal Credit Union, failed and were merged with Teachers First Credit Union, which did not accept any of the taxi loans. The third, Bay Ridge Federal Credit Union, was merged into Island Federal Credit Union as part of an emergency assisted merger.

The NCUA has not, in the past, been willing to discuss the percentage of taxi-related loans in the credit unions' portfolio. However, the IG said that about 71% of Melrose's loan portfolio was made up of taxi medallion loans as of June 30, 2018.

The report also states that the combined Share Insurance Fund loss for Melrose and LOMTO totaled $726 million, but that amount could increase, the IG warned. The report also was clear in stating, "The NCUA will not know the final cost until all the assets are sold."

The IG said that had the NCUA acted more aggressively with enforcement actions concerning issues that had not been corrected by credit union management, the credit unions would have had to make improvements to their lending practices and risk management policies—reducing the loss to the Share Insurance Fund.

Credit union managers were warned about the heavy concentration of taxi medallion loans but appeared to disregard the issue. In fact, the report states, the credit unions failed to fully analyze borrower financial information or the ability of a person to repay the loan before approving taxi-related loans.

"We believe the Credit Unions' Boards of Directors and management failed in their responsibilities to oversee the activities of the Credit Unions," the IG said.

The Credit Union Act limits the aggregate balance of member business loans, but the three credit unions qualified for exemptions since their charters state they were established to make business loans or they had a history of primarily making such loans prior to Sept. 30, 1998.

The NCUA has not recommended to Congress that that section of the law should be changed to minimize risk to the Share Insurance Fund, according to the IG.

The IG report said that in November 2015, the IG received an anonymous whistleblower tip about Melrose's CEO and its board.

The tipster accused the CEO of nepotism, improper use of credit union funds, improper benefits from vendors and mistreatment of employees.

In August 2018, the NCUA filed administrative charges against CEO Alan S. Kaufman, providing a litany of allegations against the former executive, who was removed from his position at the credit union in 2016.

The IG recommended that the NCUA establish a formal process to identify concentration risks at credit unions. In its response to the IG report, the agency said it is reviewing the results of an initial analysis of loan concentration and will have a policy in place by the end of 2020.

The agency also should revise examination quality control procedures to prioritize developing risk responses for credit unions with high concentrations of a particular type of loan, the IG said.

And the IG recommended that the NCUA require examiners to review credit union lending procedures regarding such issues as a borrower's ability to repay loans. The NCUA said it will update its annual examination scope instruction by the end of 2020.