New York Prosecutors Reportedly Open New Probe Into Taxi Medallion Loan Fraud

Federal prosecutors in Manhattan have reportedly opened a new investigation into possible lending fraud involving New York City’s taxi medallion industry.

The New York Times reported Tuesday that prosecutors have been interviewing cab drivers who were allegedly exploited by lenders, including credit unions, to take out loans to buy medallions, city-issued permits that allowed drivers to own and operate cabs. 

The investigation is reportedly being conducted by the United States Attorney’s Office for the Southern District of New York, which declined to provide a comment to the newspaper.

When contacted by the CU Times Tuesday to confirm the reported inquiry, a spokesperson said, “I cannot confirm the existence of or comment on any inventions.”

As detailed earlier this year by The New York Times and alleged by Mayor Bill de Blasio, a handful of credit unions and taxi brokers convinced cab drivers, many of them immigrants, to take out hefty loans, using their taxi medallions as collateral. The newspaper alleged that taxi industry leaders enriched themselves by artificially inflating medallion prices and then approved risky loans to cab drivers. 

For a variety of reasons, including the popularity of ride-sharing services such as Lyft and Uber, the price of taxi medallions increased to more than $1 million each in 2014 from about $200,000 each in 2002. 

Although NCUA Chairman Rodney Hood has argued that the proliferation and competition of ride-sharing services caused the crisis in the taxi loan business, he also acknowledged that the agency is tightening supervision of credit unions with high concentrations of one type of loan.

Because they could no longer afford to repay their loans, hundreds of cab drivers have declared bankruptcy while a few others have committed suicide. 

Many other medallion owners have been trying to renegotiate their loans with lenders, including credit unions.

In July, New York City lawmakers criticized the NCUA for being too rigid in negotiating new loan terms for the drivers. The agency took over the management of the loans after two credit unions were merged. 

The NCUA countered it is working hard to find solutions for medallion owners without compromising the agency’s safety and soundness. The agency also claimed New York City officials are not stepping up to help drivers.

While two credit unions, Progressive Credit Union and Melrose Credit Union, were losing millions because of underperforming taxi medallion loans, the CEOs were raking in millions.

In 2015, for example, former Progressive CU Robert Familant received $10.6 million in total compensation, which included $7.9 million from two 457(F) deferred compensation plans, according to the credit union’s 990 Forms filed with the IRS. In 2016, Familant was paid total compensation of $2.2 million and $1.9 million in 2017, IRS documents show.

Before Progressive CU was forced into an emergency merger with the $24 billion Pentagon Federal Credit Union in McClean, Va., during the fourth quarter of 2018, Progressive posted a net income loss of more than $105 million.

Alan Kaufman, the former president/CEO of Melrose Credit Union who pleaded not guilty to four felony counts of bribery and one felony count to defraud the United States, received $1.1 million in 2014, $2.3 million in 2015 and $393,336 in 2016 in compensation, according to the credit union 990 Forms filed with the IRS.

The New York State Department of Financial Services placed Melrose into conservatorship on Feb. 10, 2017, and named the NCUA as conservator. At that point, its losses over the previous 30 months were $282.6 million because of underperforming taxi medallion loans. It lost another $290.2 million in 2017, and $171.8 million in the first half of 2018. The NCUA liquidated the credit union in September 2018.