Taxi line in New York City. (Source: Shutterstock)
A lack of oversight by the NCUA allowed New York credit unions to lure unsuspecting taxi drivers into taking out loans they could not afford, the trade group representing community bankers charged Thursday, in asking for a congressional probe of the issue.
"This was a replay of the subprime lending crisis in residential mortgages prior to 2008, and a remarkable failure of lenders and regulators to learn the lessons of that recent crisis," Independent Community Bankers of America President/CEO Rebeca Romero Rainey said, in letters to the congressional committees with oversight of the NCUA.
She said that the problem indicates that the NCUA has been "captured" by the credit unions it supervises.
Rainey's charges are the latest salvos in the long battle between credit unions and banks, which allege that credit unions have an unfair competitive edge since they are tax exempt institutions.
The New York Times recently reported that some New York credit unions made predatory loans to taxi medallion owners who might not be aware of the risks, leading to a financial crisis among taxi drivers.
The value of the taxi medallions used as collateral for many loans has plunged and the taxi industry has been devastated by the rise of such services as Uber and Lyft. The president of the association representing New York's credit unions said last week that those services had an unfair advantage over taxi drivers because the services were no subject to stringent regulation by city officials.
The NCUA's Inspector General reported earlier this year that losses at two of the credit unions—Melrose Credit Union and LOMTO Federal Credit Union—could have been mitigated if examiners had identified problems at the institutions earlier.
Those losses cost NCUA's Share Insurance Fund more than $700 million last year.
In response to the inspector general's report, the NCUA said that it will tighten oversight of credit unions with a high concentration of one particular type of loan. The agency has said that Congress has placed limits on the aggregate balance of member business loans, but that three credit unions with a high concentration of taxi loans were exempt from the limits since their charters state they were established to make business loans or they had a history of primarily making such loans prior to Sept. 30, 1998.
Rainey said that the taxi debacle is likely just one of several problems that has resulted from poor oversight by the NCUA, although she did not cite any others.
And she compared the taxi issue to the subprime lending crisis.
"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," she wrote in her letter.
She said at the root of "this fiasco" is the failure of the NCUA to regulate credit unions that had a high concentration of taxi loans.
The Government Accountability Office has said it is investigating the issue of "regulatory capture" at the financial regulatory agencies. However, the GAO has not issued a report on the NCUA.
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