A San Francisco credit union is suing the city's transportation agency for $28 million or more in compensatory damages over a failed taxi medallion program.

The $1 billion San Francisco Federal Credit Union filed a civil lawsuit Tuesday in a California Circuit Court claiming the San Francisco Municipal Transportation Agency allegedly violated certain contract provisions of a public-private partnership program to protect the credit union from suffering millions of dollars in damages.

San Francisco FCU President/CEO Jonathan Oliver said filing the lawsuit was a difficult decision considering that the credit union was founded in 1954 by a group of city employees. Over the years, the credit union has partnered with San Francisco to help members afford homes in one of the most expensive cities in the country and it has supported many financial programs and community events.

“The city came to us to help monetize the taxi medallions and we had assurances that the prices would stay at 250,000 and that they would keep a vibrant taxi market,” said Oliver. “Unfortunately, when Uber and Lyft came cam on board, for whatever reasons, they (SFMTA) actually did nothing to address the taxi medallion situation.”

Nearly 100 taxi medallion loans, worth about $25 million, have been foreclosed.

“We had assurances that the city was going to back us up on these medallions and that is why we offered these medallions loans at 3% to 5%,” Oliver said.

The taxi medallion program originated when San Francisco was facing a massive budget shortfall in 2009. City leaders realized they could tap a big source of new revenue by selling transferable tax medallions to individual taxi drivers. Previously, taxi medallions had been issued free by the city and they were nontransferable.

After SFMTA set a purchase price at $250,000 for a single medallion, city officials approached San Franciso FCU to finance taxi drivers' purchases of these medallions. In 2010, the credit union and SFMTA established a private-public partnership called the Taxi Medallion Transfer Program.

To lower the credit union's risks, SFMTA agreed that it would facilitate an active market for transferrable medallions and guaranteed the credit union a price floor of $250,000. The transportation agency also committed to use diligent and good faith efforts to retransfer each foreclosed medallion as soon as reasonably possible, and it also committed to take any action that may be necessary to retransfer foreclosed medallions, according to the lawsuit.

What's more, in the event that the program failed, SFMTA agreed to repurchase the medallions for the amount originally paid after satisfying the credit union's loan and then reissue to the medallion owner at no charge a non-transferrable medallion.

When implemented, this strategy was intended by the parties to operate as an exit mechanism as it would largely return the San Francisco taxi medallion regulatory format to that which existed before the city created its revenue generating scheme to sell transferable taxi medallions, the lawsuit said.

Since the program began in August 2010, San Francisco FCU financed and originated 700 transferrable medallion originations worth more than $125 million, and the city has received revenue of more than $64 million.

Currently, San Francisco FCU is managing about $50 million in taxi medallion loans and an additional $35 million in participation loans, Oliver said.

For several years, purchasing a taxi medallion was an attractive investment for San Francisco cab drivers. On average, they could make $8,000 to $9,500 a month.

This was true even while new ridesharing companies like Uber and Lyft began to gain traction in the San Francisco transportation market, according to the lawsuit.

However, starting in 2016 the ranks of Uber and Lyft drivers grew substantially in San Francisco taking away rides and fares from cabbies. Their average monthly income plunged to under $4,500, according to San Francisco FCU.

Since mid 2016, the SFMTA has not issued or sold any medallions. It has stopped allowing taxi drivers to surrender their medallions and ceased retransferring medallions, which led to the collapse of the Taxi Medallion Transfer Program.

According to the lawsuit, SFMTA repeatedly made promises to San Francisco FCU that it would take steps to reinvigorate the taxi industry, but those promises were never fulfilled.

Even though the city essentially terminated the program, it failed to retransfer or repurchase the credit union's foreclosed medallions, and it has refused to purchase any of the transferable medallions from the medallion owners and the credit union as the contracts stipulated .

SFMTA has not yet answered San Francisco FCU's lawsuit.

Instant Insights /

California Credit Union Hits San Francisco With $28 Million Lawsuit

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