ICBA lambastes NCUA over taxi medallion scandal

The Independent Community Bankers of America is calling for Congress to investigate the National Credit Union Administration’s role in allowing institutions to make risky taxi medallion loans.

In letters sent to the Senate Banking and House Financial Services committees on Wednesday, the trade group argued that oversight failures by NCUA were central to problems with taxi medallion lending. The ICBA referenced two recent stories by the New York Times that examined lending practices tied to taxi medallions.

The coverage portrays credit unions and other lenders as knowingly making loans to borrowers, including immigrants, who might struggle to repay them with regulators doing little to curb the practices. Medallions increased in price from $200,000 in 2002 to $1 million in 2011. Many of those borrowers eventually defaulted on the loans when the bubble burst and medallion prices fell.

"At the root of this fiasco is a failure of the NCUA to regulate and supervise," ICBA President and CEO Rebeca Romero Rainey wrote. "Lending concentration, abusive loan terms, and medallion prices inflated well above their fundamental value were obvious to industry observers, but the NCUA was deaf to the many warnings it received from the outside as well as from within the agency.”

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NCUA did not immediately respond to a request for comment.

Rainey argued that NCUA was too close to the industry to properly supervise it. Stating that a congressional investigation is “urgently needed,” Rainey requested that both committees hold hearings on these issues.

“The taxi medallion scandal shows that the cost of regulatory capture goes beyond competitive advantage to the financial ruin of borrowers, systemic risk, and significant losses to the tax-payer backed National Credit Union Share Insurance Fund,” Rainey wrote.

The New York Times stories also prompted Senate Minority Leader Charles Schumer, D-N.Y., to write to Rodney Hood, NCUA’s chairman, requesting that the agency review its supervisory practices for taxi medallion credit unions. New York City Mayor Bill de Blasio and the New York Attorney General’s Office launched their own investigations into medallions after the Times stories ran.

NCUA’s Office of the Inspector General issued a report in March that examined what led to failures in taxi medallion lending. In the aftermath of the medallion bubble bursting, several credit unions were either taken over by regulators or merged with other institutions. The OIG found that poor board oversight allowed some credit unions to engage in weak risk management and contributed to asset quality issues.

The American Bankers Association has also used the New York Times coverage against credit unions. Last month the group argued that NCUA shouldn’t expand credit union access to non-member deposits because its “supervisory failures in New York’s taxi medallion business only further calls into question why this regulator would now propose to allow credit unions to accept more non-member and municipal deposits.”