Bailout Up to $500 Million Proposed for Taxi Drivers Trapped in Loans

The panel, which has been meeting regularly since last summer, wants a new public-private partnership to essentially absorb much of the debt that the drivers took on in recent years in order to buy medallions, the city-issued permits that let them own cabs. Many of the medallions were sold at artificially inflated prices by industry leaders who brought about one of the biggest speculative loan bubbles since the American financial crisis.

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The drivers, nearly all of whom are immigrants, were channeled into reckless loans totaling billions of dollars, leaving many bankrupt and struggling to survive.

The proposal would call for the partnership to buy medallion loans at discounted prices and ease the burden on borrowers by forgiving much of the debt and lowering interest payments, panel members said.

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Officials cautioned that they were still working out the details of the proposal. De Blasio has not indicated whether he would support it. In the past, he has expressed skepticism about a city-funded bailout, and his office declined to comment this week.

Corey Johnson, the City Council speaker, said the panel’s emerging plan on Wednesday was an important milestone, also indicating he was open to spending a significant amount of city money to help drivers.

“We know that folks in this industry have suffered tremendously,” Johnson said. “I’m really excited that after six months of painstaking work and effort, the task force is going to be releasing a variety of recommendations that we think could stabilize the industry, plan for the future and help alleviate the suffering.”

Some panel members said the partnership would aim to raise up to $500 million, while others, including leaders of the City Council, said the numbers were still being finalized. The city might have to contribute a portion of the total, but most of the money would come from private donors. Investors would receive incentives for contributing to the fund and would earn a return on the loans.

The 19-member panel, which is headed by two powerful members of the council, is set to release a report with the proposal this month.

Even with the mayor’s backing, organizers would have to raise money and convince lenders to sell loans. One issue is that the National Credit Union Administration, a federal agency that is now the largest holder of taxi medallion loans, is already considering selling off its loans to for-profit debt collectors and others who are unlikely to give borrowers a break.

Bhairavi Desai, founder of the Taxi Workers Alliance, a group of drivers, who is on the panel, expressed confidence in the plan.

“This is the most optimistic I have ever felt about solving this crisis,” said Desai, adding that several donors have already expressed interest.

“We’re going to win,” she said.

The proposal would be the most far-reaching step taken so far in response to a New York Times investigation that revealed more than a decade of exploitative practices in the industry.

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The Times found that a group of industry leaders artificially inflated the price of a medallion to more than $1 million from about $200,000, channeled immigrant drivers into reckless loans to purchase medallions and extracted hundreds of millions of dollars before the bubble burst.

The practices set off a crisis that has been intensified by the arrival of ride-hailing companies such as Uber and Lyft. The new apps have reduced the revenue that yellow cabs receive, but virtually all of the hundreds of industry veterans interviewed by The Times said the bubble would have burst even if ride-hailing had never been invented.

During the bubble, city, state and federal officials worsened the problems by exempting the industry from regulations. The city also chose to fill budget gaps by selling medallions and running ads promoting the permits as “better than the stock market.”

Taxi industry leaders have denied wrongdoing, describing their tactics as normal business practices and noting that regulators approved their methods. They have blamed the industry’s financial crisis exclusively on Uber and Lyft.

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After The Times’ series, the U.S. attorney’s office in Manhattan and the New York attorney general’s office each launched criminal investigations, which are ongoing.

The city has since arrested a debt collector, waived millions of dollars in fees owed by medallion owners and passed laws to prevent similar abuse in the future.

In recent weeks, there have been new efforts to help taxi medallion owners. Some lenders have restructured loans on their own. State lawmakers have introduced bills to launch a study of lending in the industry and ban some of the worst practices.

And Kirkland & Ellis, the largest law firm in the country, has agreed to represent medallion owners in loan negotiations for free. More than 1,000 owners have signed up so far.

The panel is also set to recommend more changes that would strengthen the taxi industry and shield it from increased competition from ride-hailing companies.

“It will include many suggestions on how we can create better conditions for drivers, medallion owners and the city,” said Ydanis Rodriguez, D-Manhattan, who leads the council’s transportation committee and is a co-chairman of the panel. He declined to provide further details.

But the public-private partnership will be the biggest proposal in the report.

Councilman Stephen Levin, D-Brooklyn, who is a co-chairman of the panel and is coordinating its bailout plan, said he was hopeful about the proposal because many lenders have already begun selling their medallion loans at deeply reduced prices.

Levin said there was no reason the public-private partnership could not buy loans at those same prices. But instead of squeezing everything out of the distressed assets, he said, it would focus on collecting just enough monthly payments to earn a modest profit over time.

“This wouldn’t be a charity effort,” he said. “Anybody that participates would get a rate of return.”

Levin said Amalgamated Bank, the largest union-owned bank in the country, has expressed interest in the proposed entity. A spokeswoman for the bank declined to comment.

It is unclear how many drivers could be helped by the proposed plan. There are more than 4,000 driver-owners, but some have declared bankruptcy and others have had their loans sold to collectors who may not cooperate with the new effort. Members of the panel estimated that perhaps 2,500 owners could be rescued.

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Levin also said it was premature to discuss the amount of money that the effort may seek to raise. He also said the panel will propose several options, including more modest initiatives.

The panel is set to release its report on Jan. 31, but several members said they plan to do it earlier, in part because of concerns about the National Credit Union Administration.

The agency now controls thousands of loans previously held by credit unions in the taxi industry that had been closed because of their lending practices. The agency is considering selling the loans in order to avoid further losses to the credit union industry, according to a person who was asked to bid.

If the loans are dispersed to private interests, that could complicate a bailout for the drivers.

An agency spokesman declined to comment.

Some members of Congress, including Reps. Alexandria Ocasio-Cortez, Adriano Espaillat and Gregory W. Meeks, all Democrats from New York City, have urged the agency to help medallion owners. Meeks said in a statement that he planned to introduce a bill this week to exempt any debt relief that cabdrivers receive from being considered taxable income.

This article originally appeared in The New York Times .