Aspire FCU Builds on Taxicab Medallion Success With Niche CUSO
Perez, a former banker at Banco Popular, which at one point had a $1 billion taxicab medallion portfolio, knew how the financing worked. With hands-on knowledge of the unique licenses, he was recently named president/CEO of Aspire Medallion Funding LLC, a newly launched subsidiary of $170 million Aspire FCU in Clark, N.J. Prior to his new post, Perez was vice president of lending and financial recovery at the credit union.
Rarely issued and often pricey, taxicab medallions are city licenses that authorize the operation of a taxicab and give drivers the ability to not only operate a small business but to also lease the permits to other operators for a fee. The medallions can also be used as a security for loans and may be transferred to another qualified buyer.
Since 2006, Aspire FCU has built its taxicab medallion portfolio to $58 million and $45 million worth of participations with 26 credit unions. Perez said the credit union previously issued small business loans but larger commercial real estate loans failed to take off. A conversation with a friend a few years ago about taxicab medallion financing led to presenting the idea to the credit union. The board approved it in November 2005, and it debuted in January 2006.
"Most [of the credit union's members] have had medallions in place for 15 to 20 years. We've had no delinquencies and no charge-offs. We're finding that people would rather pay their taxi medallions than their mortgages," Perez said.
Discussions to launch a CUSO devoted specifically to taxicab medallion financing kicked off in 2008. Credit union attorney Guy Messick helped guide Aspire Medallion's startup, Perez said. The aim is to bring in other credit unions that may not be as familiar with how the financing works. The timing could not be better "due to all of the issues with corporates that are not lending to CUSOs," Perez pointed out. Right now, Aspire Medallion is working with banks to get a line of credit as well as other outside investors to secure a warehouse line of credit.
Typically, Aspire's taxicab medallion loans are three-year or five-year balloon loans. The CUSO finances 80% of the loan. Aspire Medallion charges an underwriting and servicing fee of 25 to 50 basis points, Perez said. The CUSO is "still playing with the numbers" but is initially looking at charging $1,000 for corporates and $700 for natural credit unions. A $250 processing fee and attorney fee is paid out by the member, he added. While he believes the rates are competitive, Perez said he has turned down some deals because he couldn't beat the rate offered by other lenders.
The taxicab medallion business goes back to 1937 when New York Mayor Fiorello La Guardia signed the Haas Act, which created the system to clean up the industry flooded with cab drivers, some who were operating unsafe vehicles. According to the New York City Taxi and Limousine Commission, the entity that regulates medallion sales, state and local laws have allowed it to sell new medallions since 2003, totaling 13,150 new medallions since then. Before that, sales had not occurred since the late 1940s. At its last auction in May 2008, the commission sold 89 medallions ranging from $300,000 to $700,000.
Perez said while it has never happened to Aspire, the biggest risk involved with taxicab medallion lending is if the owner skips town and cannot be located. The person is reported to the New York City Taxi and Limousine Commission. If the medallion can not be found after 60 days, it is reissued. An entire broker industry is devoted to buying and selling medallions, he noted.