The phone call that ruined Mohammed Hoque's life came in April 2014 as he began another long day driving a New York City taxi, a job he had held since emigrating from Bangladesh nine years earlier.
The call came from a prominent businessman who was selling a medallion, the coveted city permit that allows a driver to own a yellow cab instead of working for someone else. If Hoque gave him $50,000 that day, he promised to arrange a loan for the purchase.
After years chafing under bosses he hated, Hoque thought his dreams of wealth and independence were coming true. He emptied his bank account, borrowed from friends and hurried to the man's office in Astoria, Queens. Hoque handed over a check and received a stack of papers. He signed his name and left, eager to tell his wife.
Hoque made about $30,000 that year. He had no idea, he said later, that he had just signed a contract that required him to pay $1.7 million.
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 channelled 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 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 to inflate prices, The Times found.
From 2002 to 2014, the price of a medallion rose to more than US$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."
As in the housing crash, government officials ignored warning signs and exempted lenders from regulations. The city Taxi and Limousine Commission went the furthest of all, turning into a cheerleader for medallion sales. It was tasked with regulating the industry, but as prices skyrocketed, it sold new medallions and began declaring they were "better than the stock market."
After the medallion market collapsed, Mayor Bill de Blasio opted not to fund a bailout, and this year, the City Council speaker, Corey Johnson, shut down the committee overseeing the taxi industry, saying it had completed most of its work.
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.
A Pakistani immigrant who thought he was just buying a car ended up with a $780,000 medallion loan that left him unable to pay rent. A Bangladeshi immigrant said he was told to lie about his income on his loan application; he eventually lost his medallion. A Haitian immigrant who worked to exhaustion to make his monthly payments discovered he had been paying only interest and went bankrupt.
It is unclear if the practices violated any laws. But after reviewing The Times' 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, senior instructor at Harvard Law School's clinic on predatory lending and consumer protection. "This was modern-day indentured servitude."
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."
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 TLC 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 Joshi, who left the commission in March. "It was a party. Why stop it?"
A valuable piece of tin
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.
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."
5am to 5pm, six days a week
Before coming to America, Mohammed Hoque lived comfortably in Chittagong, a city on Bangladesh's southern coast. He was a serious student and a gifted runner, despite a small and stocky frame. His father and grandfather were teachers; he said he surpassed them, becoming an education official with a master's degree in management. He supervised dozens of schools and travelled on a government-issued motorcycle. In 2004, when he was 33, he married Fouzia Mahabub.
That same year, several of his friends signed up for the green card lottery, and their thirst for opportunity was contagious. He applied, and won.
His wife had an uncle in Jamaica, Queens, so they went there. They found a studio apartment. Hoque wanted to work in education, but he did not speak enough English. A friend recommended the taxi industry.
It was a common move for South Asian immigrants. In 2005, about 40 per cent of New York cabbies were born in Bangladesh, India or Pakistan, according to the U.S. Census Bureau. Overall, just 9% were born in the United States.
Hoque joined Taxifleet Management, a large fleet run by the Weingartens, a Russian immigrant family whose patriarchs called themselves the "Three Wise Men."
He worked 5 a.m. to 5 p.m., six days a week. On a good day, he said, he brought home $100. He often felt lonely on the road, and he developed back pain from sitting all day and diabetes, medical records show.
He could have worked fewer shifts. He also could have moved out of the studio. But he drove as much as feasible and spent as little as possible. He had heard the city would soon be auctioning off new medallions. He was saving to buy one.
They used it as an ATM
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.
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. 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 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," Silberger said. "It didn't matter."
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 ATM."
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.
"We couldn't figure out why the company was doing so many interest-only loans," said Michelle Pirritano, a Medallion Financial loan analyst from 2007 to 2011. "It was a good revenue stream, but it didn't really make sense as a loan. I mean, it wasn't really a loan, because it wasn't being repaid."
Almost every loan reviewed by The Times included a clause that spiked the interest rate to as high as 24% 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.
Augustin, 69, declared bankruptcy and lost his medallion. He lives off assistance from his children.
Big banks arrive
During the global financial crisis, Eugene Haber, a lawyer for the taxi industry, started getting calls from bankers he had never met.
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, 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.
The fleet owners and brokers, who technically issued the loans, did not face the same scrutiny as banks.
Walter Rabin, who led Capital One's medallion lending division between 2007 and 2012 and has led Signature Bank's medallion lending division since, said he was one of the industry's most conservative lenders. He said he could not speak for the brokers and fleet owners with whom he worked.
Rabin and other Signature executives denied fault for the market collapse and blamed the city for allowing ride-hail companies to enter with little regulation. "It's the city of New York that took the biggest advantage of the drivers," said Joseph J. DePaolo, president and chief executive of Signature. "It's not the banks."
New York Commercial Bank said in a statement that it began issuing medallion loans before the housing crisis and that they were a very small part of its business. The bank did not engage in risky lending practices, a spokesman said.
Messados said in an interview that he disagreed with interest-only loans and other one-sided terms. But he said he was caught between banks developing the loans and drivers clamoring for them. "They were insisting on this," he said. "What are you supposed to do? Say, 'I'm not doing the sale?'"
Several lenders challenged the idea that borrowers were unsophisticated. They said that some got better deals by negotiating with multiple lenders at once.
Greenbaum, Chipman and Sapino declined to comment, as did Capital One.
Some drivers have alleged in court that lenders tricked them into signing loans.
Muhammad Ashraf, a Pakistani immigrant, alleged that a broker, Heath Candero, duped him into a $780,000 interest-only loan. He said in an interview in Urdu that he could not speak English fluently and thought he was just signing a loan to buy a car. He said he found out about the loan when his bank sued him for not fully repaying. The bank eventually decided not to pursue a case against Ashraf. He also filed a lawsuit against Candero. That case was dismissed. A lawyer for Candero declined to comment.
Abdur Rahim, a Bangladeshi immigrant, alleged that his lender, Bay Ridge Credit Union, inserted hidden fees. In an interview, he added he was told to lie on his loan application. The application, reviewed by The Times, said he made $128,389, but he said his tax return showed he made about $25,000. In court, Bay Ridge has denied there were hidden fees and said Rahim was "confusing the predatory-lending statute with a mere bad investment." The credit union declined to comment.
Several employees of lenders said they were pushed to write loans, encouraged by bonuses and perks such as tickets to sporting events and free trips to the Bahamas.
They also said drivers hardly ever had lawyers at loan closings. Borrowers instead trusted their broker to represent them, even though, unbeknown to them, the broker was often getting paid by the bank.
The $1 million medallion
Fouzia Hoque did not want her husband to buy a medallion. She wanted to use their savings to buy a house. They had their first child in 2008, and they planned to have more. They needed to leave the studio apartment, and she thought a home would be a safer investment.
But Mohammed Hoque could not shake the idea, especially after several friends bought medallions at the city's February 2014 auction.
One friend introduced him to a man called "Big Savas." It was Konstantinides, a fleet owner who also had a brokerage and a lending company, Mega Funding.
The call came a few weeks later. A medallion owner had died, and the family was selling for $1 million.
Hoque said he later learned the $50,000 he paid up front was just for taxes. Mega eventually requested twice that amount for fees and a down payment, records show. Hoque said he maxed out credit cards and borrowed from a dozen friends and relatives.
Fees and interest would bring the total repayment to more than $1.7 million, documents show. It was split into two loans, both issued by Mega with New York Commercial Bank. The loans made him pay $5,000 a month — most of the $6,400 he could earn as a medallion owner.
Konstantinides said in his statement that lenders disclosed all the fees to Hoque and encouraged him to consult with a lawyer and accountant. "Mr. Hoque had extensive experience and knowledge of the taxi industry," he said.
By the time the deal closed in July 2014, Hoque had heard of a new company called Uber. He wondered if it would hurt the business, but nobody seemed to be worried.
As Hoque drove to the Taxi and Limousine Commission's downtown office for final approval of the purchase, he fantasized about becoming rich, buying a big house and bringing his siblings to America. After a commission official reviewed his application and loan records, he said he was ushered into the elegant "Taxi of Tomorrow" room. An official pointed a camera. Hoque smiled.
The bubble bursts
The medallion bubble burst in late 2014. Uber and Lyft may have hastened the crisis, 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 about 10 per cent per cab, a significant bite for low-earning drivers but a small drop compared with medallion values, which initially rose and then fell 90 per cent.
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.
They used the confessions of judgment 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.
Many lenders hired a debt collector, Anthony Medina, to seize medallions from borrowers who missed payments.
Medina left notes telling borrowers they had to give the lender "relief" to get their medallions back. The notes, which were reviewed by The Times, said the seizure was "authorized by vehicle apprehension unit." Some drivers said Medina suggested he was a police officer and made them meet him at a park at night and pay $550 extra in cash.
Other 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.
Bhairavi Desai, founder of the Taxi Workers Alliance, which represents drivers and independent owners, has asked the city to bail out owners or refund auction purchasers. Others have urged the city to pressure banks to forgive loans or soften terms.
After reviewing The Times' findings, Deepak Gupta, a former top official at the U.S. Consumer Financial Protection Bureau, said the New York attorney general's office should investigate lenders.
Gupta also said the state should close the loophole that let lenders classify medallion deals as business loans, even though borrowers had to guarantee them with everything they owned. Consumer loans have far more disclosure rules and protections.
"These practices were indisputably predatory and would be illegal if they were considered consumer loans, rather than business loans," he said.
Last year, amid eight known suicides of drivers, including three medallion owners with overwhelming loans, the city passed a temporary cap on ride-hailing cars, created a task force to study the industry and directed the city taxi commission to do its own analysis of the debt crisis.
This year, the council eliminated the committee overseeing the industry after its chairman, Councilman Rubén Díaz Sr. of the Bronx, said the council was "controlled by the homosexual community." The speaker, Johnson, said, "The vast majority of the legislative work that we have been looking at has already been completed."
In a statement, a council spokesman said the committee's duties had been transferred to the Committee on Transportation. "The council is working to do as much as it can legislatively to help all drivers," the spokesman said.
As of last week, no one had been appointed to the task force.
A road to nowhere
On the last day of 2018, the Hoques brought their third child home from the hospital.
Mohammed Hoque cleared space for the boy's crib, pushing aside his plastic bags of T-shirts and the fan that cooled the studio. He looked around. He could not believe he was still living in the same room.
His loan had quickly faltered. He could not make the payments and afford rent, and his medallion was seized. Records show he paid more than $12,000 to Mega, and he said he paid another $550 to Medina to get it back. He borrowed from friends, promising it would not happen again. Then it happened four more times, he said.
Konstantinides, the broker, said in his statement that he met with Hoque many times and twice modified one of his loans in order to lower his monthly payments. He also said he gave Hoque extra time to make some payments.
In all, between the initial fees, monthly payments and penalties after the seizures, Hoque had paid about $400,000 into the medallion by the beginning of this year.
But he still owed $915,000 more, plus interest, and he did not know what to do. Bankruptcy would cost money, ruin his credit and remove his only income source. And it would mean a shameful end to years of hard work. He believed his only choice was to keep working and to keep paying.
His cab was supposed to be his ticket to money and freedom, but instead it seemed like a prison cell. Every day, he got in before the sun rose and stayed until the sky began to darken. Hoque, now 48, tried not to think about home, about what he had given up and what he had dreamed about.
"It's an unhuman life," he said. "I drive and drive and drive. But I don't know what my destination is."
Written by: Brian M Rosenthal
© 2019 THE NEW YORK TIMES