Editor’s Note: Chip Filson, chairman emeritus of Callahan & Associates, has written a long blog related to NCUA’s sale of its taxi medallion portfolio, below. What appears below has been edited for length; Mr. Filson’s full blog on the issue can be found here.
CUToday.info had earlier reported Filson’s comments during a meeting in Washington here. In addition, CUToday.info has published comments related to the sale from NCUA Chairman Rodney Hood here and NCUA Board Member J. Mark McWatters here.
By Chip Filson
NCUA’s sale of 4,500 credit union members’ loans secured by taxi medallions to a private equity firm is a betrayal of everything the credit union cooperative system represents. Credit unions were founded to protect consumers from being exploited by loan sharks preying on those who have the least or know the least about financial services. NCUA’s sale just put these members and their families at the mercies of Marblegate Asset Management LLC, a firm that exemplifies capitalism’s limitless profit ambition.
These 4,500 borrowers have invested years, some decades, establishing an equity stake with the sweat of their brow in an earning asset to help them realize the American dream of financial well-being. They joined credit unions and trusted their interests would be treated fairly. Instead the agency regulating the industry sold them out to add additional pieces of silver to a fund bulging with more than $16 billion in liquid assets.
This action irredeemably harms these members whose interests are exactly opposite Marblegate’s. NCUA’s fundamental responsibility is to protect credit union members. This sale places a stain on the entire credit union system. It contradicts board members’ individually stated policy priorities to treat members fairly, to support financial inclusion, or follow the rule of law.
This deliberate action is an agency wide effort. There was no emergency dictating the disposal of these loans. Rather, NCUA planned for over a year to shed responsibility for the safety and well-being of the very persons credit unions were intended to serve: the member-borrower.
The agency says it worked on this effort for 18 months. When confronted earlier this year with widespread requests by New York City, Congressional and credit union leaders to work collaboratively with the 4,500 members affected, the agency claimed it had to act now or lose its credibility for future asset sales.
It put the buyer’s and its own self interests ahead of the members. Seldom has the well-being of the powerless few been so completely trampled by those with money and authority.
A 2019 New York Times investigation found 950 licensed taxi drivers have declared bankruptcy since 2016. The crushing debt has led to driver suicides. NCUA has now transferred the fate of these credit union borrowers to an investment fund whose reported plan is to acquire the largest share of New York’s 13,500 medallions.
What is Known About the Sale
On Feb. 20, the Wall Street Journal reported the sale to “an investment firm known for buying up distressed assets, will now become the largest single owner of New York City Taxi medallion loans” with this purchase.
The Journal reported the price of $350 million was for a portfolio of 3,000 New York medallions, 900 Chicago medallions, 500 Philadelphia medallions and 100 from other cities.
This is an average loan value of $77,800 each, all secured by medallions. The estimated par value of these loans is the purchase price of $350 million plus the loss NCUA says it has taken on the portfolio of $760 million. Combined, these two numbers add up to an average book value per loan of approximately $245,000.
This total par value of $1.11 billion also suggests that the average price per loan was approximately 31 cents on the dollar, or a discount of more than two thirds from the portfolio’s original book value.
We don’t know what proportion of these loans are receiving regular payments. But many are earning assets backed up with years of payment history. Some will have been rewritten. In every case the medallion security minimizes the possibility of any downside loss. For if the borrower defaults, the security has a cash price that can be monitored in each
Credit Union Borrowers’ Interests Conflict with Marblegate’s
Even at the discounted prices of the loans which would result in double digit yields, Marblegate’s strategy is to dominate the market for New York taxi medallions to enhance their profitability. Owning medallions is the firm’s operating goal, not administering borrowers’ loans. Refinancing to help individual borrowers pay down loans would just prolong the time before Marblegate might foreclose on a medallion due to driver’s payment defaults.
NCUA has turned these credit union members’ financial fate over to a fund whose sole goal is to maximize return on invested funds.
How could any individual borrower ever hope to renegotiate loan terms with Marblegate? They want the medallion, not a loan, that if paid off would take away their prospect of owning the medallion via foreclosure.
NCUA’s Moral Blindness and Administrative Stonewalling
NCUA has turned its back on common sense and its fiduciary obligations to the cooperative system.
NCUA has charged the cost of the resolution of liquidations to the credit union system but then given all the potential upside profits to the private sector to reap. Co-ops pay for all losses. For-profit firms reap the gains.
NCUA has dissed the expertise, capabilities and experience of the credit unions they oversee in turning the future of these members to a “vulture” fund over which they have no control. They have sold out not just 4,500 members, but the entire cooperative system’s reputation and replaced it with a private, profit maximizing fund’s financial ambitions.
Weak Link
This event raises the prospect that NCUA has become the weakest link in the cooperative network. For if members cannot rely on NCUA to protect their interests in this relatively small, highly visible event, what confidence should the 100 million plus members have that their interests will be safeguarded in the future?
This event is not an individual failure in which an examiner or survivor made a mistake or showed poor judgment. Rather this is an institutional failing from top to bottom over an extended period.
And that is why this betrayal has significance for every person concerned for the future of the cooperative system. To be silent is to give consent. Leadership tales courage. Shouldn’t Congress ask how this sale of members’ future fulfills NCUA’s cooperative mission?