Taxi Fallout Tests CUs’ Reputation

Credit unions like to paint bankers as greedy – working for their shareholders rather than their customers.

Credit union leaders, they have said, are more benevolent – working for their members and not beholden to shareholders.

But as the taxi medallion debacle continues to unfold, that positive reputation may take a hit. There are many threads to the ongoing drama – allegations of poor credit union management, questions about oversight by the NCUA, evidence that borrowers took out loans they did not understand and allegations that the NCUA has been unwilling to negotiate with drivers who found themselves unable to repay the loans.

And that doesn’t include the indictment of the former CEO of a major taxi credit union and taxi medallion owner.

As shoes continue to drop, the credit union industry risks taking a hit to its reputation, according to Casey Boggs, president of ReputationUs, a public relations consulting company that deals with such issues.

“They know it’s an issue,” Boggs said. “They know it’s a risk.”

The best thing is to take ownership and become part of the solution, he said.

And the industry is responding appropriately, Boggs added.

He said, for instance, William Mellin, president/CEO of the New York Credit Union Association, is serving on a task force that is studying the city’s taxi medallion industry.

“I think that’s a good thing because they don’t have all the answers yet,” he said, adding that one way to deal with such crises is to take ownership and work toward a solution.

The taxi medallion issue was thrown into the limelight in May, when The New York Times reported that many taxi drivers used brokers to apply for loans and did not understand the terms of the loans.

And many, if not most, of those loans were provided by credit unions.

The issue has continued to snowball, with much of the criticism focused on the credit union system itself.

More recently, New York City Mayor Bill DeBlasio released a report alleging 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 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.

Two credit unions, Melrose Credit Union and LOMTO Federal Credit Union, provided a large percentage of the taxi loans and were taken over by the NCUA as a result of the faltering business.

And the NCUA was quick to push back on those allegations.

“Our goal is to help taxi drivers preserve their livelihoods while also ensuring they can afford to make payments on performing and sustainable loans,” NCUA spokesperson John Fairbanks said. “We understand that behind many taxi loans are individuals and families impacted by the harsh reality of the current taxi medallion market.”

Fairbanks added, “The NCUA, as liquidator for the failed credit unions, is working with these borrowers to modify credit union loans where possible through payment reductions, lower interest rates or term adjustments. We remain committed to balancing the needs of these borrowers with meeting the congressionally mandated requirement for the NCUA to ensure the safety and soundness of credit unions and the National Credit Union Share Insurance Fund.”

And then, yet another shoe dropped.

Alan Kaufman, the former president/CEO of Melrose and a member of the credit union’s founding family, was indicted for bribery and related charges for having accepted money from Tony Georiton, a taxi medallion broker.

The NCUA’s Inspector General reported earlier this year that the taxi credit unions failed due to the heavy concentration of taxi loans and weak management at the institutions.

However, the IG also said the losses to the share insurance fund could have been mitigated if the agency had acted more aggressively in connection with the bad lending practices.

Citing that report, Senate Majority Leader Charles Schumer (D-N.Y.) has said lax oversight by the NCUA led to the taxi crisis.

Responding to Schumer, NCUA Chairman Rodney Hood placed the blame for the plunge in value of taxi medallions that backed the loans squarely on “ridesharing services, a technological disruption whose impact was as severe as it was uncontrolled,” according to a letter that Hood sent Schumer.

Nonetheless, Hood did place some of the blame on credit unions that had a high concentration of taxi loans. He also said as a result of the IG report on agency actions, the NCUA will tighten supervision of credit unions with high concentrations of one particular type of loan.

And Schumer wasn’t the only one seizing upon the IG’s report.

The Independent Community Bankers of America, citing the IG’s findings, compared the taxi crisis to the subprime mortgage crisis of 2008.

“All the familiar elements were involved: Poorly informed borrowers, falsified loan documents, interest-only payments, prepayment penalties and other abusive features as well as out-right fraud,” Rebeca Romero Rainey, president/CEO of the ICBA, wrote to leaders of the Senate Banking Committee, in asking for the panel to investigate the issue.

And Federal Financial Analytics, a firm hired by the American Bankers Association, recently issued a report making similar allegations.

But Ryan Donovan, CUNA’s chief advocacy officer, contended the bankers’ arguments are disingenuous when they try to compare the taxi issue with the housing crisis.

“There is no comparison,” he said. “You’re … comparing a pebble to a boulder.”

He added, “Everybody will have the opportunity to Monday-morning quarterback this.”