Ride-hailing apps such as Uber and Lyft have been so disruptive to New York’s taxi industry, they are causing lenders to fail.
Three New York-based credit unions that specialized in loaning money against taxi-cab medallions, the hard-to-get licenses that allow the city’s traditional cab fleet to operate, have been placed into conservatorship as the value of those medallions has plummeted.
Just three years ago, cab owners and investors were paying as much as $1.3-million (U.S.) for a medallion. Now, they are worth less than half that and some medallion owners owe more on their loans than the medallions are worth. “You’ve got borrowers who are under water. This is just like the subprime-loan crisis,” said Keith Leggett, a credit-union analyst and former senior economist at the American Bankers Association.
LOMTO Federal Credit Union, which was founded by taxi drivers in 1936 for mutual assistance, was placed into conservatorship by the National Credit Union Administration on June 26 “because of unsafe and unsound practices.” New York has the country’s largest taxi industry, with more than 13,000 medallions.
Marcelino Hervias bought his medallion in 1990 for about $120,000 and thought its value would hit $2-million by the time he was ready to retire. Instead, the 58-year-old said he owes $541,000 and is driving 12 to 16 hours a day to make ends meet. “I celebrate my kids’ birthdays over the phone. Why?” Mr. Hervias said.
While some medallions are held by large owners with fleets, owning a single medallion was long seen as a ticket to the middle class for immigrants such as Mr. Hervias, who is from Peru.
Many of them now owe more on their medallion loans than they originally paid for the medallions because they used their equity in the medallion for a home, a child’s education or other expenses.
Mr. Hervias said he borrowed against his medallion to pay for medical care for his mother, a new car and a visit to his homeland. “Every time we want to go on vacation or do something, where do we go? To the equity of the medallion,” he said.
Other medallion owners tell similar stories.
Constant Granvil bought his medallion for $102,000 in 1987 and said he now owes more than $300,000 to his lender. He could have sold the medallion for two or three times that a few years ago, “but I said no, I’m not going to sell it,” Mr. Granvil, 76, said. “And then I got caught.”
The value of Mr. Granvil’s medallion is hard to pinpoint because 2017 sale prices have varied from $200,000 to $500,000, and more, depending on whether lenders are willing to finance the purchase.
Meanwhile, Mr. Granvil, who no longer drives because of poor health and uses a broker to hire a driver, said he is facing threats from the lender, Melrose Credit Union, to foreclose on not just his medallion but also his house. “How am I going to live?” he said. “And now Melrose wants to take my house?” The New York State Department of Financial Services took possession of Melrose Credit Union in February and appointed the NCUA as conservator.
Critics say the federal agency is playing hardball with medallion owners such as Mr. Granvil, who have been making their payments, by demanding that they pay off their loans in full or face foreclosure.
“They’re approaching it with this cookie-cutter idea,” said David Beier, head of the Committee for Taxi Safety, an association of taxi-leasing agents. “They want you to mortgage your house to them as collateral. It’s forcing borrowers into bankruptcy.”
- New York taxi credit unions in jeopardy through falling medallion rates.