For that, they have first to get a supply of medallions. And current owners won't sell them unless they are given some serious money to replace that 5.5%-0.35% income stream. One of the reasons why the price of medallions skyrockets.

Of course, I imagine it's not completely risk-free. It is a strictly regulated business. Which means you need a lot of friends in key places - otherwise somebody who does have a lot of friends would put you out of the lucrative business and take it for himself.

And there's some measure of competition - 5.5% is not a super-high for a loan with a collateral. Higher than mortgage rates but substantially lower than unsecured loan rates. About 1% over common HELOC rates and about the same as home equity loan rates. Of course, repossessing a home is much harder than repossessing a medallion, so probably medallion business is better, but the rate is not totally outrageous compared to similar loans.