Rivals Eye Taxi Medallions
App-based transportation services such as Uber and Lyft have brought increased competition to the city of New York's taxicab industry and introduced an element of uncertainty on the value of taxi medallions and potentially to those credit unions that finance their purchase or use them as collateral for other loans.
Taxi medallions are the instruments used to regulate the numbers of licensed taxicabs and can serve as a source of revenue for owners who either drive the vehicles or lease out their cars to other drivers, according to Michael Reiver, general counsel at the $2.1 billion Melrose Credit Union in Briarwood, N.Y.
Melrose is one of a handful of credit unions in the New York greater metropolitan area that lend for taxi medallions, he said.
The apps’ impact on the taxi trade and the value of the taxi medallions is hard to quantify. First, the battle is more evident with drivers than passengers. Cab companies have alleged in the local media outlets that former Taxi and Limousine Commission members leaked drivers’ names or contact information to Uber so that the app company can contact them and lure them away from driving cabs.
Ashwini Chhabra left his $160,000-a-year post with the Taxi and Limousine Commission in May and took over as Uber's head of policy development and community engagement three days later, according to media outlets. The New York City Department of Investigation said it is looking into whether Chhabra may have violated the city's conflict of interest regulations in the days leading up to his leaving the commission.
Second, even if the San Francisco-based Uber succeeds in luring drivers away from behind the wheels of their yellow taxis, it is not clear if they will stay.
On Oct. 22, hundreds of Uber drivers in Manhattan and other cities turned their apps off and held a strike over what they described as one-sided policies that favored the companies offering them, according to media reports. They also protested the app platform's fares complaining they were too low for them to make a living. Uber has denied the strike had any impact on its New York operations in the city that day.
Richard Kay, president of the Taxicab Service Association, which is a group of four New York City area credit unions that makes taxi medallion loans, acknowledged the industry has seen some turmoil this year, but maintained an optimistic outlook about both it and the value of medallions.
“I have heard from some fleets that they had some drivers who had not shown up, and they couldn't put all their cars on the street,” Kay said. “But I have also heard that drivers have been coming back.”
While increased competition from alternative services occurs, the industry has largely taken it in stride, Kay said. Even as the price of taxi medallions might have dipped a little, he said it was impossible to determine by how much or whether prices have recovered.
Kay also noted that any effort by Uber to hire taxi drivers had been restricted to mini fleets, and no changes took place regarding individual medallion owners who often finance their medallions at credit unions.
“The important thing is that there has not been any slowdown in business for the taxis. They are still in demand and it's still possible to make money driving a New York City taxi,” Kay said.
More than 13,600 taxi medallions have been issued by the New York City Taxi and Livery Commission.
Credit unions like the medallions because they are worth a significant amount of money and have been prized as an investment vehicle that consistently rises in value even as other assets, such as real estate and stocks, have fallen, Reiver explained. He acknowledged their worth can be difficult to pin down because they lack a transparent market.
The New York City Taxi and Livery Commission said it issued 13,605 medallions including 368 of them between November 2013 and February 2014. The latter figure was limited because the commission required their associated cars have mechanisms for handicap access such as portable ramps and other modifications.
The TLC divided the roughly 13,000 so-called unrestricted medallions in half, with roughly 6,500 going to independent drivers who actually drive the cars and 6,500 to investors who often run what the commission calls mini fleets of drivers who lease their cars, Reiver said. However, the commission hasn't auctioned any unrestricted medallions since 2004, according to its website. The only other market for them is private sales, he noted.
Sales or transfers must be reported to the TLC which can publish the price for the transaction. There are many transfers that don't carry a price such as medallions that pass from one owner to another as part of an estate or a business partnership, according to the commission.
When the TLC auctioned off some handicap accessible mini fleet medallions in March 2014, the winning bids ranged from $2.2 million to $2.4 million. In February, winning bids for independent handicap accessible medallions ranged from nearly $806,000 to $965,000. These prices were a sign that they are continuing to hold their value, Reiver noted, which is good news because Melrose has more than $1.5 billion in loans anchored by the medallions.
He pointed to the credit union's strong performance as an indication of its lending and management prowess. At the end of June, the most recent month that peer data is available, Melrose had a net worth ratio of 19.21%, well above its peer group. Its delinquency and charge-off ratio was also significantly lower than its peers. Further, the credit union's return on average asset ratio stood at 1.45%, compared to 0.86% for its peers.
Reiver said Melrose was aware of an April 2014 NCUA Supervisory Letter to credit unions that, among other things, took an overall cautionary stance towards medallion lending.
“While recent history reflects a continuously rising market price for medallions, an adverse change in market conditions and economic cycles can decrease prices,” according to the NCUA letter. “When economic conditions change, credit unions that engage in significant levels of liberal financing can suffer from significant loan-to-value shortfalls. The real estate market crisis of 2008 demonstrates how quickly a collateral-deficient loan portfolio can impair a credit union's viability.”
Reiver did not detail Melrose's complaints with the letter, but described the NCUA's guidance as “overkill.”