San Francisco Taxi Medallion Program Expands Niche for CUs
o A handful of credit unions are the first lenders to participate in a San Francisco taxi medallion sales program.
o The program aims to bring in up to $20 million for the city of San Francisco.
o San Francisco FCU funded the first loan and has nearly 15 more in the pipeline.
In labyrinthine San Francisco, taxi cabs are always in high demand to help tourists and residents navigate the city's tight spaces.
So when the San Francisco Municipal Transportation Agency recently launched its taxi medallion sales pilot program, it hoped to revamp a nearly 35-year-old system to add several millions of dollars each year to the city's coffers, train cab drivers to run their businesses better and ease downtown congestion.
San Francisco Federal Credit Union and its partners Montauk Credit Union, San Francisco Fire Credit Union, and San Francisco Police Credit Union were the first to sign on with the city to offer lending services to facilitate the transfer of San Francisco taxi medallions.
To explain how the pilot program works requires going back in time. In 1978, a San Francisco voter proposition significantly changed the taxi industry and restricted the transferability of taxi
medallions, which are licenses to own and operate a taxi. Although this proposition helped to cure some significant deficiencies, it became overly restrictive and created a waiting list to obtain these important business licenses.
Furthermore, older and disabled drivers were often forced to drive in order to keep their licenses active. After many town hall meetings and public hearings, on Aug. 3, the SFMTA's board of directors gave final approval for the launch of a short-term pilot program for the buying and selling of San Francisco taxi medallions. This allows medallion holders who are older than 70 or disabled to sell their medallions to new qualified drivers. The agency anticipates that approximately 200 medallions will be sold under the program. An exact number cannot be calculated because the program is voluntary, said Christiane Hayashi, deputy director of taxi services for the agency.
However, for all its strong points, the program at first lacked the ability to finance the transaction. That's where New York-based, $118 million Montauk CU came in. Having offered the option for decades, the credit union is considered an expert in taxi medallion financing. Louis Jimenez, president/CEO of Montauk, and Mike Turano, vice president of lending, were instrumental in helping develop the financing mechanism for San Francisco's medallion program, Hayashi said.
Jimenez said it makes sense for credit unions to get involved in this kind of lending. "It's a win for credit unions because they're able to help people with their business," he explained. "With the lack of credit, here's an example of how to get past that."
The SFMTA anticipates the program will result in about $20 million in new revenue over the next two years, Hayashi said. There are roughly 150 medallion sellers, from whom the agency will realize $37,500 per sale in transfer fees. The pilot program also allows the agency to sell up to 60 medallions outright for a profit of $237,500 per medallion. So far, the agency has collected nearly $100,000 on sales. A driver's fund, which will be used in part to assist injured drivers, receives 5% of each sale and has already collected $37,500 from the first three medallion sales. The SFMTA will receive 15% from each sale and the seller will receive 80%.
The $755 million San Francisco FCU funded the first loan, said Steven Stapp, president/CEO. Leading the effort was Rebecca Reynolds Lytle, vice president of lending, who facilitated meetings between the SFMTA, the Medallion Holders Association, taxi companies, taxi drivers, sellers and credit unions.
"In assisting the qualified drivers in obtaining the loan, we have also helped the taxi industry in establishing documented agreements between the driver and the taxi company," Stapp said. "This is good business for all involved."
Since the program's debut in early August, SFFCU has funded four loans and has nearly 15 in the pipeline, he said. The CU offers balloon and amortizing financing options. There is a $495 loan origination fee and no fees or prepayment penalty. A 20% down payment is required. An applicant can borrow up to 80% of the taxi medallion's value of $250,000.
Hayashi said while CUs are the first signees, the medallion program is open to state and federally chartered institutions that do not charge prepayment penalties for loans and sign the SFMTA's qualified lender agreement, which lists several requirements. In addition to the four CU lenders already signed, two other CUs and three banks have expressed interest in the program, but are not currently participants. Since the program is still new, Hayashi said some financial institutions may be taking a wait-and-see approach. Others might not be comfortable or familiar with the taxi medallion lending model, she added.
"I suspect that in due time we will have other institutions who want to participate once the dust settles," Hayashi said. "Because the fear in the San Francisco industry was that taxi drivers would never be able to afford these loans, the flexibility and energy that the credit unions put into defining easy qualification terms, a simple loan application package and the variety of excellent loans that they made available made this program successful."
Taxi cab drivers have welcomed the program. On Aug. 4, Ahmad Sidaoui became the first medallion purchaser in 33 years after waiting more than 14 years on the SFMTA list. He was No. 168 on a list of more than 3,000 potential purchasers. Rather than waiting indefinitely to receive a medallion, he was ready to start his own business, the SFMTA said. Mildred Megarity was just as ready to sell the medallion that her deceased husband had purchased in 1968 for $20,000. Ultimately, Sidaoui was able to buy the medallion for $250,000 with a loan from SFFCU.
According to SFMTA Executive Director Nathaniel Ford, "This important milestone was a momentous day and said the city is moving its taxi industry into the next century."
Hayashi said if it had not been for Montauk's leadership and SFFCU's early interest, the program would not have taken off as it has.
"We may have brought the horse to the trough, but without those two credit union partners, there would have been no water to drink," she said.