Taxi Lenders File Suit in New York City
With claims that a plan from the mayor of New York’s office to create up to 18,000 livery cabs would create unfair competition with the city’s yellow cabs, an association of credit union lenders has filed a lawsuit to halt the effort.
The Taxicab Service Association said it filed on April 27 in New York State Supreme Court seeking to invalidate the HAIL Act. According to the group, the act embodies Mayor Michael Bloomberg’s 2011 plan to create a new class of up to 18,000 liveries authorized to pick up street hails in Brooklyn, Queens, the Bronx, Staten Island and much of Manhattan.
The TSA said the act is in direct competition with New York’s yellow cabs, and it authorizes the mayor alone to flood the market with 2,000 new yellow cab medallions. TSA works exclusively with credit union lenders who finance medallions. Taxi medallions are licenses that allow for the ownership and operation of a taxi. The association’s members are the New York-based $1.7 billion Melrose Credit Union, the $578 million Progressive Credit Union, the $133 million Montauk Credit Union and the $232 million Lomto Federal Credit Union.
The group is also claiming that HAIL will devalue yellow taxi medallions and potentially trigger a credit crisis for the $5 billion medallion lending industry. According to the suit, New York’s
Taxi and Limousine Commission has illegally begun to implement the act without a proper review of the potentially impact of 18,000 street hail livery vehicles on the city's air and noise quality, traffic congestion and neighborhood character.
A comment from Bloomberg’s office was not available by press time.
The lawsuit alleged that New York has pocketed hundreds of millions of dollars through yellow cab medallion auctions by making representations of yellow cab street hail exclusivity and that medallion lenders' and owners' investments are now at risk of massive devaluation as a direct and foreseeable result of the mayor's borough street hail program.
The lawsuit seeks a declaration that the HAIL Act is illegal and an injunction to prevent its implementation.
“The livery street hail law is illegitimate and irresponsible,” said TSA President Richard Kay, in a statement. “We and other industry representatives tried mightily to work with the mayor's representatives and the TLC to craft an acceptable piece of legislation.”
“The taxi industry was built on the backs of our member not-for-profit credit unions and other lenders, and by the sweat of hard-working, largely minority medallion owners and drivers,” Kay said. “Now what are we left with?”
Several credit unions offer financing for taxi medallions and have managed to build niche portfolios with the loans. The NCUA issued an opinion letter in 2010 stating that a CUSO can act as a loan broker for loans used to finance the purchase of New York City taxi medallions.
That same year, several credit unions partnered with the San Francisco Municipal Transportation Agency to launch a taxi medallion sales pilot program. The $815 million San Francisco Federal Credit Union and its partners the $133 million Montauk Credit Union in New York, the $525 million San Francisco Fire Credit Union and the $714 million 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.
Since offering the financing, the three San Francisco credit unions have funded more than 195 loans totaling $38 million, said Steven Stapp, president/CEO of San Francisco FCU.
“So, far it has been going very well. We have a very good partnership with the SFMTA,” Stapp said.
San Francisco’s taxi drivers are eager to meet with the credit unions because they want to know how the medallion transactions work, which can be complex, Stapp said. Lenders also meet with the sellers of the medallion.
Stapp said several good outcomes from the pilot program are keeping up with the volume as well as being to provide member education opportunities.
The SFMTA’s program is still in a pilot phase but is expected to be permanent by the end of the year, Stapp noted.
Of the TSA lawsuit, Stapp said he heard a few details and feels that there may be some merits to the group’s case. In San Francisco, the medallions are controlled by the SFMTA. Financial institutions participating in the pilot program work with the agency on the economic advantages a taxi driver can generates, he explained.
“We have a joint mission to make sure the medallion is affordable. Our taxi drivers want to own the medallion and the loan facilitates that,” Stapp said. “My understanding is in New York, it’s more of an investor market. They anticipate selling later at a higher price.”
While San Francisco’s program is not near the scope of the one in New York, Stapp said there have been discussions with the SFMTA to add more taxis and on how much the market can bear.
Since offering the medallion loans, there have not been any delinquencies and defaults among the credit unions offering them, Stapp said. Another difference between San Francisco and New York is the lenders underwrite to the individual and the collateral value of the medallion, he pointed out.
“We require all taxi cab drivers to provide tax returns and we revalidate the loan back to the driver each year,” Stapp said. “I believe in New York and in some other markets, they simply look at the underwriting value.”
Because of those steps, Stapp said it doesn’t foresee having any delinquencies or defaults.
“We believe these practices are what the NCUA wants us to follow,” he said. “For us, in amortizing a loan, if a taxi driver decides to sell after six to 12 months, they can sell it for full value and recoup some of the costs there.”