An “asset bubble,” not lackluster oversight by the NCUA led to the crisis facing New York City taxi drivers and the now-closed credit unions that loaned them money, NCUA Chairman Rodney Hood said, responding to allegations made by Senate Minority Leader Charles Schumer (D-N.Y.).
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 that following an Inspector General report on agency actions, the NCUA will tighten supervision of credit unions with high concentrations of one particular type of loan.
The credit unions “did have some deficiencies in their underwriting standards and ignored repeated warning from this agency, including guidance on the dangers of concentration risk that was issued in 2010,” Hood wrote. “As a result, they paid the ultimate price—they have either been liquidated or merged.”
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.
The New York Times 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.
Hood continued to defend the credit unions serving the taxi industry, saying that they provided a needed service.
“The not-for-profit credit unions that served this industry, however, provided business loans to member taxi owners and operators in New York City for more than 80 years and, for much of that time, their business was stable,” he wrote.
The ride-sharing services caused an “asset bubble” that resulted in the value of the taxi medallions plunging.
Hood told Schumer that the agency’s risk management council recently reviewed concentration risks and that a “standing review process” will be implemented. He said an update on “examination scoping” will go into effect with the 2020 examination process.
And he said staff will be instructed to escalate actions to resolve repeated findings regarding credit unions.
Addressing taxi loans that the agency controls as the result of the Melrose and LOMTO closings, Hood said that the NCUA is working with borrowers to modify the loans through payment reductions, lower interest rates or term adjustments.
“Our goal is to help taxi drivers preserve their livelihoods while ensuring they can afford to make payments on performing and sustainable loans,” he told Schumer.