Owners of New York City's taxi "medallions" and three credit unions that finance taxi medallions filed on November 17 a lawsuit in U.S. District Court against the City of New York and the Taxi and Limousine Commission.
The complaint alleges disparate regulatory treatment of the taxi medallion industry compared to Uber and other e-hail providers. This disparate treatment according to the complaint violates the equal protection clause under the Fourteenth Amendment of the U.S. Constitution.
Moreover, the complaint outlines the worsening financial condition of one credit union -- Melrose Credit Union (Briarwood, NY).
Starting in paragraph 28 of the complaint, Melrose Credit Union states that it had aggregate taxicab medallion loan delinquencies of approximately $32,000 and no troubled debt restructurings as of January 2014. As of August 31, 2015, Melrose’s medallion loan delinquencies totaled $226,552,719––an increase of approximately 10 percent in a one month period. Likewise, as of August 31, 2015, troubled debt restructurings totaled approximately $195,529,000. Thus, Melrose reached approximately $422,081,719 in delinquencies and troubled debt restructurings––an increase of approximately 7 percent in a single month, and a staggering 34 percent increase since May 31, 2015.
Also in paragraph 31, Melrose Credit Union stated that it has hundreds of medallion loans maturing between now and February 2016, which will worsen the problem. In fact, Melrose has 190 medallion loans maturing in December with almost $83,000,000 in balloon payments becoming due. However, many of these loans are probably underwater due to falling taxi medallion prices.
Furthermore in paragraph 54, Melrose alleges that the Taxi and Limousine Commission overstated the average value of taxi medallions that the credit union used to underwrite the purchase of medallions until October 2013. Elsewhere in the complaint, it states that the Taxi and Limousine Commission, when calculating the average value for taxi medallions, tossed out medallion purchases the Commission believed were below the fair value for medallions. This might suggest that Melrose may have advanced more funds than would have been prudent based upon overinflated valuation of taxi medallions.
In paragraph 187, the complaint states that Melrose financed approximately 128 of the roughly 200 accessible medallions sold at the November 2013 auction. Today, 108 of the approximately 128 (or 84 percent) of the medallions sold in the November 2013 auction and financed by Plaintiff Melrose are now classified as either delinquent or troubled debt. This would suggest recent vintage taxi medallion loans could account for the bulk of the delinquencies and trouble debt restructurings.
For example, Melrose's Call Reports state that the credit union made almost 2,000 member business loans worth almost $878 million in 2013 and approximately 1302 member business loans worth almost $600 million in 2014. Presumably, most of these loans were for taxi medallions.
This information would suggest delinquencies and troubled debt restructurings are only going to go higher.
The following link to an article about the lawsuit has a link to the complaint. Read the article.
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Where's congress when you need them. This is being allowed to fester which could make the hit to the fund even greater?
ReplyDeleteA bank regulator would be taking it over.
But I guess a real regulator would not allow concentration of 70% of assets.
So the NCUA permits Melrose CU, Progressive CU, LOMTO FCU to go all in load up at 100+% loan to share ratio on these Taxi Medallions. The Medallions go POP when Uber comes to market. These Medallions were a result of government price fixing. The free market has killed the price fix. Blame the free market. Blame the NCUA. The credit unions have to own up to concentration risk and eat. They had no complaints when they were getting grease like pigs at the trough. Deal with it.
ReplyDeleteIf you are a credit union, YOU will be paying for it.
DeleteThe bad assets in these credit unions add up to a lot more than the reserves of ncusif.
Deal with THAT by paying assessments.
Can you say wescorp?
Do you see a trend here? The NCUA allows WesCorp, USCentral, MembersUnited, etc. to load up on credit risk investments that go bust. These credit unions go into conservatorship. The surviving credit unions pay the assessments to cover the losses. Now, we have Taxi Medallion credit unions in the groove to enter conservatorship. Again, the surviving credit unions will pay the assessments to cover the losses. Why the losses? Because once again the NCUA failed the industry be permitting these rogue credit unions to go all in balls to the wall on Taxi Medallions. Can you say NCUA INCOMPETENCE? 3 Village Idiots control an agency with more of the same.
ReplyDeleteI heard that some of the medallion credit unions wanted to convert charter to be banks and so NCUA "allowed" the higher concentration of business loans, cause that's what a medallion is, so that they wouldn't convert. Is that true?
ReplyDeleteCongress is derelict in not dealing with this.
Unfortunately, I don't know the answer to this question.
DeleteMeanwhle for the past 20+ years these credit unions have been selling to other unsuspecting credit unions "loan participations" consisting of these taxi medallions. The medallion toxic waste has now traveled to other credit union balance sheets and deliqnuency reports. The defaults on these loans will travel beyond these NY credit unions. Resulting NCUSIF losses will be huge as these credit unions drive into conservatorship. NCUA can fix this and they will take from their toolbox the grand tool: Assessments. Actually it is a vice they will apply to the healthy credit unions to cover the losses. The healthy credit unions that avoided these taxi medallions will shortly pay for them and the NCUA gets another 'free ride' at credit union expense.
ReplyDeleteTony Costanzo, Which credit unions are most exposed to medallion loans via participations?
ReplyDeleteWhile NCUA has disclosed that 122 credit unions hold taxi medallion loans, NCUA has not disclosed the name of credit unions with exposure to medallion loans.
ReplyDeleteHowever, I know that Quorum FCU in it 2014 annual report disclosed it had $78.3 million in taxi medallion loans.