It strikes me that only allowing individual drivers to buy the medallions might help with this problem. I.e. only allow a person who had bought the thing directly from the government to use it for driving a cab. Then the drivers could take out loans from someone to purchase a medallion, but that loan would be on the same terms as anyone else.
Why do you need medallions at all? The drivers already have licenses - just make the background check part of getting a license, and just charge 100$ for a license. Let as many people be taxi drivers as want to be.
We don't worry about reducing work to a living wage in any other field - we allow free entry into carpentry, construction, business & don't require them to buy medallions before starting to work.
It's a general problem of resource allocation - just like cancer. Some group or cell identifies a resource and starts diverting or blocking it for their own benefit, and this increased power/energy is enough to protect the problem from unmotivated defenders.
Or if you wanna keep the supply artificially low somehow, and provide some sort of barrier for entry, do like London does and require prospective drivers to pass a ridiculously stringent test of their understanding of local geography (The Knowledge). From wikipedia:
"It is the world's most demanding training course for taxicab-drivers, and applicants will usually need at least twelve 'appearances' (attempts at the final test), after preparation averaging 34 months, to pass the examination"
"In all some 25,000 streets within a six mile radius of Charing Cross are covered along with the major arterial routes through the rest of London.... The Knowledge includes such details as the order of theatres on Shaftesbury Avenue, or the names and order of the side streets and traffic signals passed on a route."
Overkill in the era of GPS? Probably. But pretty cool.
Not for the customers who will be paying artificially inflated prices and not for the aspiring drivers who have to pass ridiculous three-year hazing ceremony in order to be able to earn a honest living. Of course, once they passed, they have an incentive to make the others suffer as badly as they did.
Yeah, the flipside of this is that taxis in London are ridiculously expensive and anyone except tourists, the very rich and the very desperate will just wind up hiring a Minicab, which means getting into a filthy wreck of a car with a random stranger who inevitably looks like a rapist, which is precisely what taxi licencing schemes are designed to avoid in the first place.
So one would have to get a $200K loan to become a taxi driver. And then if it doesn't work out for you after a year, you're toast since you can't re-sell it - no market for it, since everybody gets it directly from the government.
Now imagine you're a fresh aspiring immigrant just coming to New York. Who in his sane mind would loan you $200K with no collateral if you could just decide next year it's not for you and they couldn't even sue you - you have nothing. Who would drive the cabs then - bankers? There's not "anyone else" that could get a loan even of couple of thousands with no collateral and no way to recover it. The best you get is credit cards companies - they charge 20%+ APRs for a reason. Imagine having to pay off a $200K loan with 20% APR.
On the other hand, if you make the license cheap, the corruption potential would be overwhelming - if you have somebody distributing very limited supply of licenses costing $100 but allowing income of, say, $100K per year, an incentive for bribery and other trickery would be impossible to resist. Pretty soon the price would get close to the actual cost, only the difference will be pocketed by corrupt officials.
