Thousands of immigrant taxi drivers were trapped in exploitative loans by bankers who made huge profits.
The drivers, chasing the dream of owning a New York taxi medallion, were left destitute, a Times investigation found.
NY TIMES
Over the past year, a spate of suicides by taxi drivers in New York City has highlighted in brutal terms the overwhelming debt and financial plight of medallion owners. All along, officials have blamed the crisis on competition from ride-hailing companies such as Uber and Lyft.
But a New York Times investigation found much of the devastation can be traced to a handful of powerful industry leaders who steadily and artificially drove up the price of taxi medallions, creating a bubble that eventually burst. Over more than a decade, they channeled thousands of drivers into reckless loans and extracted hundreds of millions of dollars before the market collapsed.
These business practices generated huge profits for bankers, brokers, lawyers, investors, fleet owners and debt collectors. The leaders of nonprofit credit unions became multimillionaires. Medallion brokers grew rich enough to buy yachts and waterfront properties. One of the most successful bankers hired the rap star Nicki Minaj to perform at a family party.
But the methods stripped immigrant families of their life savings, crushed drivers under debt they could not repay and engulfed an industry that has long defined New York. More than 950 medallion owners have filed for bankruptcy, according to a Times analysis of court records. Thousands more are barely hanging on.
The practices were strikingly similar to those behind the housing market crash that led to the 2008 global economic meltdown: Banks and loosely regulated private lenders wrote risky loans and encouraged frequent refinancing; drivers took on debt they could not afford, under terms they often did not understand.
Some big banks even entered the taxi industry in the aftermath of the housing crash, seeking a new market, with new borrowers.
The combination of easy money, eager borrowers and the lure of a rare asset helped prices soar far above what medallions were really worth. Some industry leaders fed the frenzy by purposefully overpaying for medallions in order to inflate prices, The Times found.
Between 2002 and 2014, the price of a medallion rose to more than $1 million from $200,000, even though city records showed that driver incomes barely changed.
About 4,000 drivers bought medallions in that period, records show. They were excited to buy, but they were enticed by a dubious premise.
“The whole thing was like a Ponzi scheme because it totally depended on the value going up,” said Haywood Miller, a debt specialist who has consulted for both borrowers and lenders. “The part that wasn’t fair was the guy who’s buying is an immigrant, maybe someone who couldn’t speak English. They were conned.”
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| Uppkar Thind said he has to drive his yellow cab as many 13 hours a day, as he struggles to pay off a taxi medallion that he bought 11 years ago.Caitlin Ochs for The New York Times |
Over 10 months, The Times interviewed 450 people, built a database of every medallion sale since 1995 and reviewed thousands of individual loans and other documents, including internal bank records and confidential profit-sharing agreements.
The investigation found example after example of drivers trapped in exploitative loans, including hundreds who signed interest-only loans that required them to pay exorbitant fees, forfeit their legal rights and give up almost all their monthly income, indefinitely.
It is unclear if the practices violated any laws. But after reviewing The Times’s findings, experts said the methods were among the worst that have been used since the housing crash.
“I don’t think I could concoct a more predatory scheme if I tried,” said Roger Bertling, the senior instructor at Harvard Law School’s clinic on predatory lending and consumer protection. “This was modern-day indentured servitude.”
Lenders developed their techniques in New York but spread them to Chicago, Boston, San Francisco and elsewhere, transforming taxi industries across the United States.
In interviews, lenders denied wrongdoing. They noted that regulators approved their practices, and said some borrowers made poor decisions and assumed too much debt. They said some drivers were happy to use climbing medallion values as collateral to take out cash, and that those who sold their medallions at the height of the market made money.
The lenders said they believed medallion values would keep increasing, as they almost always had. No one, they said, could have predicted Uber and Lyft would emerge to undercut the business.
“People love to blame banks for things that happen because they’re big bad banks,” said Robert Familant, the former head of Progressive Credit Union, a small nonprofit that specialized in medallion loans. “We didn’t do anything, in my opinion, other than try to help small businesspeople become successful.”
Mr. Familant made about $30 million in salary and deferred payouts during the bubble, including $4.8 million in bonuses and incentives in 2014, the year it burst, according to disclosure forms.
Meera Joshi, who joined the Taxi and Limousine Commission in 2011 and became chairwoman in 2014, said it was not the city’s job to regulate lending. But she acknowledged that officials saw red flags and could have done something.
“There were lots of players, and lots of people just watched it happen. So the T.L.C. watched it happen. The lenders watched it happen. The borrowers watched it happen as their investment went up, and it wasn’t until it started falling apart that people started taking action and pointing fingers,” said Ms. Joshi, who left the commission in March. “It was a party. Why stop it?”
Every day, about 250,000 people hail a New York City yellow taxi. Most probably do not know they are participating in an unconventional economic system about as old as the Empire State Building.
The city created taxi medallions in 1937. Unlicensed cabs crowded city streets, so officials designed about 12,000 specialized tin plates and made it illegal to operate a taxi without one bolted to the hood of the car. The city sold each medallion for $10.
People who bought medallions could sell them, just like any other asset. The only restriction: Officials designated roughly half as “independent medallions” and eventually required that those always be owned by whoever was driving that cab.
Over time, as yellow taxis became symbols of New York, a cutthroat industry grew around them. A few entrepreneurs obtained most of the nonindependent medallions and built fleets that controlled the market. They were family operations largely based in the industrial neighborhoods of Hell’s Kitchen in Manhattan and Long Island City in Queens.
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| A sampling of medallions issued by the Taxi and Limousine Commission through the years.CreditSam Falk, Fred R. Conrad, John Sotomayor, Andrea Mohin and Richard Perry/The New York Times, Kholood Eid for The New York Times |
Allegations of corruption, racism and exploitation dogged the industry. Some fleet bosses were accused of cheating drivers. Some drivers refused to go outside Manhattan or pick up black and Latino passengers. Fleet drivers typically worked 60 hours a week, made less than minimum wage and received no benefits, according to city studies.
Still, driving could serve as a path to the middle class. Drivers could save to buy an independent medallion, which would increase their earnings and give them an asset they could someday sell for a retirement nest egg.
Those who borrowed money to buy a medallion typically had to submit a large down payment and repay within five to 10 years.
The conservative lending strategy produced modest returns. The city did not release new medallions for almost 60 years, and values slowly climbed, hitting $100,000 in 1985 and $200,000 in 1997.
“It was a safe and stable asset, and it provided a good life for those of us who were lucky enough to buy them,” said Guy Roberts, who began driving in 1979 and eventually bought medallions and formed a fleet. “Not an easy life, but a good life.”
“And then,” he said, “everything changed.”
In the early 2000s, a new generation took power in New York’s cab industry. They were the sons of longtime industry leaders, and they had new ideas for making money.
Few people represented the shift better than Andrew Murstein.
Mr. Murstein was the grandson of a Polish immigrant who bought one of the first medallions, built one of the city’s biggest fleets and began informally lending to other buyers in the 1970s. Mr. Murstein attended business school and started his career at Bear Stearns and Salomon Brothers, the investment banks.
When he joined the taxi business, he has said, he pushed his family to sell off many medallions and to establish a bank to focus on lending. Medallion Financial went public in 1996. Its motto was, “In niches, there are riches.”
Dozens of industry veterans said Mr. Murstein and his father, Alvin, were among those who helped to move the industry to less conservative lending practices. The industry veterans said the Mursteins, as well as others, started saying medallion values would always rise and used that idea to focus on lending to lower-income drivers, which was riskier but more profitable.
The strategy began to be used by the industry’s other major lenders — Progressive Credit Union, Melrose Credit Union and Lomto Credit Union, all family-run nonprofits that made essentially all their money from medallion loans, according to financial disclosures.
“We didn’t want to be the one left behind,” said Monte Silberger, Lomto’s controller and then chief financial officer from 1999 to 2017.
The lenders began accepting smaller down payments. By 2013, many medallion buyers were not handing over any down payment at all, according to an analysis of buyer applications submitted to the city.
“It got to a point where we didn’t even check their income or credit score,” Mr. Silberger said. “It didn’t matter.”
Lenders also encouraged existing borrowers to refinance and take out more money when medallion prices rose, according to interviews with dozens of borrowers and loan officers. There is no comprehensive data, but bank disclosures suggest that thousands of owners refinanced.
Industry veterans said it became common for owners to refinance to buy a house or to put children through college. “You’d walk into the bank and walk out 30 minutes later with an extra $200,000,” said Lou Bakalar, a broker who arranged loans.
Some pointed to the refinancing to argue that irresponsible borrowers fueled the crisis. “Medallion owners were misusing it,” said Aleksey Medvedovskiy, a fleet owner who also worked as a broker. “They used it as an A.T.M.”
As lenders loosened standards, they increased returns. Rather than raising interest rates, they made borrowers pay a mix of costs — origination fees, legal fees, financing fees, refinancing fees, filing fees, fees for paying too late and fees for paying too early, according to a Times review of more than 500 loans included in legal cases. Many lenders also made borrowers split their loan and pay a much higher rate on the second loan, documents show.
Lenders also extended loan lengths. Instead of requiring repayment in five or 10 years, they developed deals that lasted as long as 50 years, locking in decades of interest payments. And some wrote interest-only loans that could continue forever.
Almost every loan reviewed by The Times included a clause that spiked the interest rate to as high as 24 percent if it was not repaid in three years. Lenders included the clause — called a “balloon” — so that borrowers almost always had to extend the loan, possibly at a higher rate than in the original terms, and with additional fees.
Yvon Augustin was caught in one of those loans. He bought a medallion in 2006, a decade after emigrating from Haiti. He said he paid $2,275 every month — more than half his income, he said — and thought he was paying off the loan. But last year, his bank used the balloon to demand that he repay everything. That is when he learned he had been paying only the interest, he said.
Mr. Augustin, 69, declared bankruptcy and lost his medallion. He lives off assistance from his children.
During the global financial crisis, Eugene Haber, a lawyer for the taxi industry, started getting calls from bankers he had never met.
Mr. Haber had written a template for medallion loans in the 1970s. By 2008, his thick mustache had turned white, and he thought he knew everybody in the industry. Suddenly, new bankers began calling his suite in a Long Island office park. Capital One, Signature Bank, New York Commercial Bank and others wanted to issue medallion loans, he said.
Some of the banks were looking for new borrowers after the housing market collapsed, Mr. Haber said. “They needed somewhere else to invest,” he said. He said he represented some banks at loan signings but eventually became embittered because he believed banks were knowingly lending to people who could not repay.
Instead of lending directly, the big banks worked through powerful industry players. They enlisted large fleet owners and brokers — especially Neil Greenbaum, Richard Chipman, Savas Konstantinides, Roman Sapino and Basil Messados — to use the banks’ money to lend to medallion buyers. In return, the owners and brokers received a cut of the monthly payments and sometimes an additional fee.
In late 2012, Andrew Murstein appeared on the Fox Business Networkto talk about medallions.
“These are little cash cows running around the city spitting out money,” Mr. Murstein said, beaming in a navy suit and pink tie.
He did not mention he was quietly leaving the business, a move that would benefit him when the market collapsed.
By the time of the appearance, Medallion Financial had been cutting the number of medallion loans on its books for years, according to disclosures it filed with the Securities and Exchange Commission. Mr. Murstein later said the company started exiting the business and focusing on other ventures before 2010.
Mr. Murstein declined numerous interview requests. He also declined to answer some written questions, including why he promoted medallions while exiting the business. In emails and through a spokesman, he acknowledged that Medallion Financial reduced down payments but said it rarely issued interest-only loans or charged borrowers for repaying loans too early.
“Many times, we did not match what our competitors were willing to do and in retrospect, thankfully, we lost the business,” he wrote to The Times.
Interviews with three former staffers, and a Times review of loan documents that were filed as part of lawsuits brought by Medallion Financial against borrowers, indicate the company issued many interest-only loans and routinely included a provision allowing it to charge borrowers for repaying loans too early.
Other lenders also left the taxi industry or took precautions long before the market collapsed.
The credit unions specializing in the industry kept making new loans. But between 2010 and 2014, they sold the loans to other financial institutions more often than in the previous five years, disclosure forms show. Progressive Credit Union, run by Mr. Familant, sold loans off almost twice as often, the forms show. By 2012, that credit union was selling the majority of the loans it issued.
In a statement, Mr. Familant said the selling of loans was a standard banking practice that did not indicate a lack of confidence in the market.
Several banks used something called a confession of judgment. It was an obscure document in which the borrower admitted defaulting on the loan — even before taking out any money at all — and authorized the bank to do whatever it wanted to collect.
They used the confessions to get hundreds of judgments that would allow them to take money from bank accounts, court records show. Some tried to get borrowers to give up homes or a relative’s assets. Others seized medallions and quickly resold them for profit, while still charging the original borrowers fees and extra interest. Several drivers have alleged in court that their lenders ordered them to buy life insurance.risis, but virtually all of the hundreds of industry veterans interviewed for this article, including many lenders, said inflated prices and risky lending practices would have caused a collapse even if ride-hailing had never been invented.
At the market’s height, medallion buyers were typically earning about $5,000 a month and paying about $4,500 to their loans, according to an analysis by The Times of city data and loan documents. Many owners could make their payments only by refinancing when medallion values increased, which was unsustainable, some loan officers said.
Still, driving could serve as a path to the middle class. Drivers could save to buy an independent medallion, which would increase their earnings and give them an asset they could someday sell for a retirement nest egg.
Those who borrowed money to buy a medallion typically had to submit a large down payment and repay within five to 10 years.
The conservative lending strategy produced modest returns. The city did not release new medallions for almost 60 years, and values slowly climbed, hitting $100,000 in 1985 and $200,000 in 1997.
“It was a safe and stable asset, and it provided a good life for those of us who were lucky enough to buy them,” said Guy Roberts, who began driving in 1979 and eventually bought medallions and formed a fleet. “Not an easy life, but a good life.”
“And then,” he said, “everything changed.”
In the early 2000s, a new generation took power in New York’s cab industry. They were the sons of longtime industry leaders, and they had new ideas for making money.
Few people represented the shift better than Andrew Murstein.
Mr. Murstein was the grandson of a Polish immigrant who bought one of the first medallions, built one of the city’s biggest fleets and began informally lending to other buyers in the 1970s. Mr. Murstein attended business school and started his career at Bear Stearns and Salomon Brothers, the investment banks.
When he joined the taxi business, he has said, he pushed his family to sell off many medallions and to establish a bank to focus on lending. Medallion Financial went public in 1996. Its motto was, “In niches, there are riches.”
Dozens of industry veterans said Mr. Murstein and his father, Alvin, were among those who helped to move the industry to less conservative lending practices. The industry veterans said the Mursteins, as well as others, started saying medallion values would always rise and used that idea to focus on lending to lower-income drivers, which was riskier but more profitable.
The strategy began to be used by the industry’s other major lenders — Progressive Credit Union, Melrose Credit Union and Lomto Credit Union, all family-run nonprofits that made essentially all their money from medallion loans, according to financial disclosures.
“We didn’t want to be the one left behind,” said Monte Silberger, Lomto’s controller and then chief financial officer from 1999 to 2017.
The lenders began accepting smaller down payments. By 2013, many medallion buyers were not handing over any down payment at all, according to an analysis of buyer applications submitted to the city.
“It got to a point where we didn’t even check their income or credit score,” Mr. Silberger said. “It didn’t matter.”
Lenders also encouraged existing borrowers to refinance and take out more money when medallion prices rose, according to interviews with dozens of borrowers and loan officers. There is no comprehensive data, but bank disclosures suggest that thousands of owners refinanced.
Industry veterans said it became common for owners to refinance to buy a house or to put children through college. “You’d walk into the bank and walk out 30 minutes later with an extra $200,000,” said Lou Bakalar, a broker who arranged loans.
Some pointed to the refinancing to argue that irresponsible borrowers fueled the crisis. “Medallion owners were misusing it,” said Aleksey Medvedovskiy, a fleet owner who also worked as a broker. “They used it as an A.T.M.”
As lenders loosened standards, they increased returns. Rather than raising interest rates, they made borrowers pay a mix of costs — origination fees, legal fees, financing fees, refinancing fees, filing fees, fees for paying too late and fees for paying too early, according to a Times review of more than 500 loans included in legal cases. Many lenders also made borrowers split their loan and pay a much higher rate on the second loan, documents show.
Lenders also extended loan lengths. Instead of requiring repayment in five or 10 years, they developed deals that lasted as long as 50 years, locking in decades of interest payments. And some wrote interest-only loans that could continue forever.
Almost every loan reviewed by The Times included a clause that spiked the interest rate to as high as 24 percent if it was not repaid in three years. Lenders included the clause — called a “balloon” — so that borrowers almost always had to extend the loan, possibly at a higher rate than in the original terms, and with additional fees.
Yvon Augustin was caught in one of those loans. He bought a medallion in 2006, a decade after emigrating from Haiti. He said he paid $2,275 every month — more than half his income, he said — and thought he was paying off the loan. But last year, his bank used the balloon to demand that he repay everything. That is when he learned he had been paying only the interest, he said.
Mr. Augustin, 69, declared bankruptcy and lost his medallion. He lives off assistance from his children.
During the global financial crisis, Eugene Haber, a lawyer for the taxi industry, started getting calls from bankers he had never met.
Mr. Haber had written a template for medallion loans in the 1970s. By 2008, his thick mustache had turned white, and he thought he knew everybody in the industry. Suddenly, new bankers began calling his suite in a Long Island office park. Capital One, Signature Bank, New York Commercial Bank and others wanted to issue medallion loans, he said.
Some of the banks were looking for new borrowers after the housing market collapsed, Mr. Haber said. “They needed somewhere else to invest,” he said. He said he represented some banks at loan signings but eventually became embittered because he believed banks were knowingly lending to people who could not repay.
Instead of lending directly, the big banks worked through powerful industry players. They enlisted large fleet owners and brokers — especially Neil Greenbaum, Richard Chipman, Savas Konstantinides, Roman Sapino and Basil Messados — to use the banks’ money to lend to medallion buyers. In return, the owners and brokers received a cut of the monthly payments and sometimes an additional fee.
 |
| Andrew Murstein, left, with his father, Alvin.Chester Higgins Jr./The New York Times |
“These are little cash cows running around the city spitting out money,” Mr. Murstein said, beaming in a navy suit and pink tie.
He did not mention he was quietly leaving the business, a move that would benefit him when the market collapsed.
By the time of the appearance, Medallion Financial had been cutting the number of medallion loans on its books for years, according to disclosures it filed with the Securities and Exchange Commission. Mr. Murstein later said the company started exiting the business and focusing on other ventures before 2010.
Mr. Murstein declined numerous interview requests. He also declined to answer some written questions, including why he promoted medallions while exiting the business. In emails and through a spokesman, he acknowledged that Medallion Financial reduced down payments but said it rarely issued interest-only loans or charged borrowers for repaying loans too early.
“Many times, we did not match what our competitors were willing to do and in retrospect, thankfully, we lost the business,” he wrote to The Times.
Interviews with three former staffers, and a Times review of loan documents that were filed as part of lawsuits brought by Medallion Financial against borrowers, indicate the company issued many interest-only loans and routinely included a provision allowing it to charge borrowers for repaying loans too early.
Other lenders also left the taxi industry or took precautions long before the market collapsed.
The credit unions specializing in the industry kept making new loans. But between 2010 and 2014, they sold the loans to other financial institutions more often than in the previous five years, disclosure forms show. Progressive Credit Union, run by Mr. Familant, sold loans off almost twice as often, the forms show. By 2012, that credit union was selling the majority of the loans it issued.
In a statement, Mr. Familant said the selling of loans was a standard banking practice that did not indicate a lack of confidence in the market.
Several banks used something called a confession of judgment. It was an obscure document in which the borrower admitted defaulting on the loan — even before taking out any money at all — and authorized the bank to do whatever it wanted to collect.
They used the confessions to get hundreds of judgments that would allow them to take money from bank accounts, court records show. Some tried to get borrowers to give up homes or a relative’s assets. Others seized medallions and quickly resold them for profit, while still charging the original borrowers fees and extra interest. Several drivers have alleged in court that their lenders ordered them to buy life insurance.risis, but virtually all of the hundreds of industry veterans interviewed for this article, including many lenders, said inflated prices and risky lending practices would have caused a collapse even if ride-hailing had never been invented.
At the market’s height, medallion buyers were typically earning about $5,000 a month and paying about $4,500 to their loans, according to an analysis by The Times of city data and loan documents. Many owners could make their payments only by refinancing when medallion values increased, which was unsustainable, some loan officers said.
City data shows that since Uber entered New York in 2011, yellow cab revenue has decreased by about 10 percent per cab, a significant bite for low-earning drivers but a small drop compared with medallion values, which initially rose and then fell by 90 percent.
As values fell, borrowers asked for breaks. But many lenders went the opposite direction. They decided to leave the business and called in their loans.
Drivers lost everything. Most of the more than 950 owners who declared bankruptcy had to forfeit their medallions. Records indicate many were bought by hedge funds hoping for prices to rise. For now, cabs sit unused.
Read more including some heartbreaking stories of cab drivers at NY TIMES