Tuesday, September 17, 2019

Federal investigation targets a loan system crushing New York cabdrivers

  • Brian M Rosenthal, The New York Times
    Published: 2019-09-12 02:55:25 BdST

Federal prosecutors in Manhattan have opened an investigation into possible lending fraud in the New York City taxi industry, the most significant action taken in response to widespread practices that trapped thousands of cabdrivers under crushing debt, according to people with knowledge of the inquiry.

In the past month, agents have interviewed cabdrivers who said they were encouraged to take on huge debt under exploitative terms in order to buy a taxi medallion, the city permit that allowed them to own their own cab.

The investigation, which is in its beginning stages, appears to be looking at possible crimes including bank, wire or mail fraud.

The inquiry is being conducted by the US Attorney’s Office for the Southern District of New York. It could reverberate throughout the city’s taxi industry, which has been engulfed in a financial crisis and rocked by a string of suicides among cabdrivers. More than 950 drivers have filed for bankruptcy, and many more are still buried in overwhelming debt.

Asked about the investigation Monday, a spokesman for the US Attorney’s Office declined to comment. New York’s attorney general, Letitia James, is also conducting her own inquiry into the industry.

“I told them everything,” said Mohammed Hoque, 48, one of two drivers who said they were interviewed by federal agents and whose debt was so overwhelming he lost his medallion. “I hope they help us.”

Hoque, who was featured in articles by The New York Times about the lending practices, bought his medallion in 2014 and signed a loan that required him to pay $1.7 million, even though his annual income was only about $30,000. He said he did not understand the terms of his loan.

Hoque, an immigrant from Bangladesh, said he drove six days a week, 12 hours a day, but still fell behind on his payments. His medallion has been repossessed six times, and he currently is unable to get it back, he said.

FILE -- A taxi on the streets of New York, Dec. 11, 2018. Federal prosecutors in Manhattan have opened an investigation into possible lending fraud in the New York City taxi industry, a response to widespread practices that trapped thousands of cabdrivers under crushing debt, according to people with knowledge of the inquiry. (Kholood Eid/The New York Times)

FILE -- A taxi on the streets of New York, Dec. 11, 2018. Federal prosecutors in Manhattan have opened an investigation into possible lending fraud in the New York City taxi industry, a response to widespread practices that trapped thousands of cabdrivers under crushing debt, according to people with knowledge of the inquiry. (Kholood Eid/The New York Times)

The Times’ series revealed that a handful of taxi industry leaders enriched themselves by artificially inflating medallion prices and providing risky loans to buyers. The price of a medallion rose to more than $1 million in 2014 from about $200,000 in 2002. Many of the more than 4,000 cabdrivers who bought medallions in that period were low-income immigrants who did not speak English fluently and signed interest-only loans or other lopsided agreements.

Federal agents also spoke with Yvon Augustin, a 69-year-old Haitian immigrant who bought a medallion in 2006 and spent more than half of his monthly income on loan payments for years before realising he had only been paying interest. He went bankrupt.

The series also showed how regulators at every level of government ignored clear warning signs, and how city officials actively worsened the problem by selling medallions at auctions and by running advertisements that stated the permits were “better than the stock market.”

The medallion bubble burst in 2014, hastened in part by competition from ride-hailing companies such as Uber and Lyft.

Taxi industry leaders, including the lenders and brokers who arranged loans, have denied any wrongdoing. They have described their tactics as normal business practices, noting that regulators approved their methods, and blamed some borrowers for taking on too much debt. They have blamed the industry’s financial crisis exclusively on Uber and Lyft.

The day after The Times published its findings in May, the attorney general’s office opened its inquiry into the lending practices. On Monday, a spokeswoman for James declined to provide an update on that inquiry.

Mayor Bill de Blasio also launched his own review in response to The Times’ reporting. That review found that many of the city’s medallion brokers, who arrange private sales of the permits as well as loans for the purchases, engaged in “predatory practices.”

City officials have written new regulations to prevent abusive practices in the future, waived $10 million in fees owed by medallion owner-drivers and arrested a debt collector notorious in the industry.

But officials have not agreed on a bailout for owner-drivers. Several New York City Council members are pushing to at least provide refunds to some drivers who bought medallions at city auctions, spurred in part by data showing the city made more than $850 million off medallion sales during the bubble. But de Blasio has said he believes that such a move would be too expensive.

Many people in the taxi industry have been hoping that a criminal investigation could lead to a settlement that could help medallion owner-drivers climb out from under their debt. Some lenders have renegotiated loans to reduce payments for drivers.

Experts have called for investigations into the loans but said that the lending practices may not have been illegal, in part because the loans were classified as business loans, which are subject to fewer regulations.

The lenders in the taxi industry included several nonprofit credit unions, including Melrose Credit Union, Progressive Credit Union and Lomto Credit Union; lending company Medallion Financial; large institutions such as Capital One, Signature Bank and New York Commercial Bank; and several large taxi fleet owners, including Neil Greenbaum, Roman Sapino, Richard Chipman, Savas Konstantinides, Basil Messados and Tony Georgiton.

None of those lenders, brokers or fleet owners responded to requests for comment Monday about the federal investigation.

The credit unions were closed by the federal government for unsafe and unsound business practices after the medallion market collapsed. Georgiton is facing a separate federal indictment charging him with orchestrating a bribery scheme with the former chief executive of Melrose Credit Union, Alan Kaufman.

The next hearing in that case is scheduled for next month. The men have denied wrongdoing.

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