By Ray Birch
NEW YORK—Amid concerns over ridesharing services hurting cab companies and possibly the value of taxi medallions—and collateral on CU loans—credit unions that serve the taxi industry say their biggest worry right now is, in fact, a different challenge: NCUA.
A number of credit unions that make taxi medallion loans are confident taxi businesses across the U.S. will survive upstart services such as Uber and Lyft. Instead, they told CUToday.info they are unsettled by NCUA’s new scrutiny on taxi medallion loans. Examiners, several sources say, are placing increased attention on taxi medallion lending, making it more difficult to make the loans and sell participations.
“NCUA is interpreting existing regulations differently than in the past, and in a manner that makes it more difficult to make loans to serve our members,” said Mitchell Reiver, general counsel at the $2-billion Melrose CU, which holds more than $1.4 billion in medallion loans. “For example, NCUA now requires global cash flow analysis of borrowers in a manner far greater than what is required by the regulation.”
Executives from CUs that serve the taxi industry pointed to the long history of sound medallion lending by credit unions whose delinquencies are extremely low.
“The credit unions in New York City that make these loans have been doing this successfully for over 40 years,” said Reiver. “While we share NCUA’s concerns regarding sound underwriting, we believe their current approach is having the unintended consequence of adversely impacting our ability to make loans.”
Louis Jimenez, CEO of the $147-million Montauk CU here, stated that examiners are requiring his credit union to “do a lot more” to make loans work for prospective borrowers. “Much more documentation . . . As result we have had to say ‘no’ more often, and to some long-term members. I think our experience has been consistent among other taxi credit unions. This has brought about (in the medallion market) a slight drop in the confidence in the value of the medallion.”
Lou Jimenez, Montauk CU
Medallion Values Falling?
Published reports have indicated that medallion values have fallen. The New York Post recently stated that values had fallen by an average of $150,000, due largely to a 10% drop in taxi drivers who have defected to Uber.
Reiver, who was quoted in the Post article about the $150,000 decline, said that the figure he cited was based on a special circumstance and that not enough medallion transfers have taken place to gauge a true market value now. The special circumstance involved a medallion owner who was forced to sell due to an illness not permitting him to drive a taxi. According to New York regulations, Reiver said, owners of individual medallions must also drive.
It is that fluctuation in medallion value, with prices going up in the last few years and surging in the first half of 2014, that led NCUA in April to issue a supervisory letter (SL No. 14-04) and guidance.
The letter stated: “Taxi medallion lending is a valuable member service provided by certain credit unions with expertise in this form of member business lending which entails some unique risks. Recently, market forces have contributed to a significant increase in medallion values in several major metropolitan markets. As a result, credit unions that offer or participate in these loans can be exposed to increased risk.”
NCUA told CUToday.info that it is concerned with the rapid rise in medallion prices in some markets over the last several years. “Corresponding revenue has not increased at the same rate, suggesting a potential for a bubble in some markets—medallion values are driven by local market conditions, including the supply of medallions which is often heavily regulated by the municipal authority,” said spokesperson John Fairbanks (see related story).
But any possible drop or perceived drop in medallion values now is not affecting borrowers’ ability to repay, said Robert Familant, CEO of the $670-million Progressive CU here.
“I imagine the situation with Uber and Lyft is somewhat affecting taxi industry pocketbooks. But our members are paying their loans,” he said.
Jimenez said there is still enough business to go around for both ridesharing services and cabs. Citing electronic trip reports the CU receives from its taxi medallion borrowers, the number of taxi rides has not been declining. “Our members are not losing money,” he said.
Cabby Cites Uber Issues
But CUToday.info spoke with a driver for Alexandria Yellow Cab, who said taxi drivers in the Washington area face serious challenges from Uber.
“Go to any hotel in this area and all you will see are Uber cars,” said the driver who asked not to be named. “I am still OK, because I have the airport (Reagan International). That is still good business for taxis. I think people like Uber because you can be picked up anywhere, right next door, and you don’t have to go to the typical locations where taxis pass by or stand.”
CU execs contend the issues medallion owners face now from ridesharing services—drivers leaving and potentially lower revenue—will eventually disappear once the new mobile-app-based transportation companies fall under government regulations, like those taxi companies abide by, and when market forces drive fares and driver opportunity to a uniform level.
Steven Stapp, CEO of the $914-million San Francisco CU in San Francisco, noted that legislation has been passed in California that will require transportation network companies to carry commercial insurance.
“We do provide taxi loans here in San Francisco,” said Stapp. “The transportation network companies are a very sensitive area for our members. Our loan portfolio continues to perform well and we are working with the San Francisco Municipal Transportation Authority on some regulatory relief measures for the taxi industry.”
The attractiveness of driving for Uber—which a New York Post story indicated led to more than 10% of the 50,000 drivers who pilot 13,000 yellow cabs here to defect to Uber within four months—could be waning.
“I am being told by folks in the taxi industry that drivers are coming back because Uber has not been able to live up to its promises,” said Jimenez.
Uber drivers in New York City, San Francisco and Los Angeles recently staged work protests as a result of the rideshare companies’ practices and alleged failed promises, reports have stated.
“People have been misled about Uber income projections and about how the service is going to work,” said Familant.
More Pressure From NCUA
Again, Reiver indicated, the most pressing issue for his CU is NCUA scrutiny—and the supervisory letter and guidance.
“Like many taxi medallion credit unions, we sell participations. The tone of the letter is such that a taxi medallion lender may choose not to make an otherwise solid loan for fear of regulatory repercussions. Credit unions that purchase these participations received the letter as well,” pointed out Reiver, who said that has lowered participation interest in his CU’s taxi medallion loans.
Jimenez said that going back more than 40 years Montauk has never written off a penny of principal on any taxi medallion loan. “These loans allow our members to earn a living and they will continue to work diligently to make sure their cars are operating and they have drivers to drive them.”
Reiver, emphasized a similar point.
“We are in the risk business and we are quite capable of managing that risk, evidenced by our history,” said Reiver, whose CU’s taxi medallion delinquencies are 0.30%.
“Rideshare is affecting the taxi business, certainly, but that industry will survive and thrive. The taxi business in New York has survived 9/11, Hurricane Sandy, and the recession. We have seen softening of medallion values in the past and they have always bounced back,” said Reiver, adding that he hopes, as well, “NCUA lessens the excessive scrutiny to which we are being subjected.”
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