Schumer Accuses NCUA of 'Lackluster Oversight' of Taxi Credit Unions

In the wake of a New York Times investigation of loans made to the taxi industry, Senate Majority Leader Charles Schumer (D-N.Y.) has accused the NCUA of lax oversight and is asking the agency to speed up efforts to improve its examination process.

The newspaper reported earlier this month that the NCUA and others allowed credit unions to make predatory loans to taxi medallion owners who may have been unaware of the risks.

“The federal agency that oversaw many of the largest lenders in the industry, the National Credit Union Administration, said those lenders were meeting the needs of borrowers,” the newspaper reported.

Last year, two credit unions that had a high concentration of taxi loans—Melrose Credit Union and LOMTO Federal Credit Union failed as a result of their heavy concentration of taxi loans.

In his letter, Schumer asks NCUA Chairman Rodney Hood to examine agency procedures. He cited an agency Inspector General report that recommended that the agency change examination procedures at credit unions with a high concentration of one type of loans.

“The many families now paying the financial and emotional price for lackluster oversight deserve swift answers,” he wrote.

An NCUA spokesman said the agency has received the letter and is reviewing it,

NCUA officials have agreed to change examination procedures, but said their hands were tied when it came to the taxi loans.

“Taxi medallion lending is a highly specialized commercial loan product, which has a specific waiver in federal law from the member business lending cap,” the NCUA said, in responding to a list of questions submitted by CU Times. “Making these loans was a business decision for the credit unions. As a federal financial institutions regulator, the NCUA does not have the legal authority to regulate or intervene in the market for taxi medallions.”

Agency officials have cited a provision in the Credit Union Membership Access Act that specifically exempted credit union chartered for the purpose of making or had a history of member business loans.

A Senate report on the bill specifically mentioned taxi medallion loans.

In its response to questions posed by CU Times, the NCUA said that traditionally taxi medallion loans have performed well, but their value plunged as a result of competition from ride-sharing companies.

The agency said it long has recognized the risks of lending portfolios with large concentrations of one type of loans and has provided guidance on the issue to credit unions and examiners.

However, in its review of the failures of Melrose and LOMTO, the Inspector General said that losses to the credit unions could have been mitigated if the agency had taken action sooner.

The Inspector General recommended that the agency institute a formal process to analyze loan concentration risks at credit unions that could pose a risk for the Share Insurance Fund. And the agency should consider developing appropriate thresholds for various concentrations that would require increased attention from the agency.

In its response to the report, the NCUA said it already has started to evaluate risk concentration and is reviewing the results of an initial analysis of loan concentrations.

The agency said it will consider thresholds as part of a process that will be in place by the end of 2020.

The Inspector General also recommended that the agency revise examination control procedures to make it a high priority to assess and develop risk responses for credit unions with high levels of concentration risk.

The NCUA agreed that by the end of 2020, the NCUA’s quality assurance program will include a “more robust” review of examination reports before they are released to credit unions.

Finally, the agency agreed that by the end of 2020, NCUA examinations will emphasize the need to review credit union underwriting practices to determine a borrower’s ability to meet debt service requirements.