Speaking before an Oregon Credit Union CEOs in December 2017, NCUA Board Member Metsger stated that NCUA’s ability to curtail speculative taxi medallion lending was limited by a provision in the Credit Union Membership Access Act. Metsger noted that the Senate Report specifically mentioned taxi medallion lending as an example of loan activity that was exempt from the Member Business Loan (MBL) cap of 12.25 percent of assets.
The Office of the Inspector General wrote:
"We found no evidence of NCUA directly communicating a recommendation to congress to rescind or modify the exception to NCUA's Rules and Regulations Part 723 for aggregate MBL limits."
The Office of Inspector General concluded that such recommendations could have mitigated the loss to the National Credit Union Share Insurance Fund by slowing the growth in taxi medallion portfolios or diversifying lending practices at the three failed taxi medallion lending credit unions.
So why didn't NCUA make a recommendation to Congress?
Dr. Leggett your series of articles on the role and intricacies of credit unions has been very informative. I am a member of a credit union an didn't really understand how credit unions offered these rates that were usually better than traditional banks. After a long history of lending to medallion owners in NYC, incurring very minor losses in an 80yr history of these financial transactions, why would the credit unions stop? A city franchise that gave billions to the city and never received anything from the city or state. A franchise that employed tens of thousands of drivers at any given point, usually with a salary that offered upward mobility and not stagnant slavery. Why would the CU's believe that cities would abandon tried and tested revenue producing medallions? Medallions tacicabs are still going strong in NYC. Their value has dropped. Yes this is true, but are still holding their own in an environment where our political hacks have tilted the playing field to favor app companies that have given nothing but congestion to our city. Low paying jobs(that abuse labor laws). Also very little economic gain for the NYC. What I really want is for the CU's to take a different approach to their lending practices but they shouldn't abandon the medallion market. As was shown when the housing crisis, financial backing is critical for our industry to regain a steadier foothold in our city. Three hundred thousand rides per day are provided by the medallion taxicabs. City residents need these taxicabs. Apps after$18B of investment, buying their market share with schemes, dirty tactics(some criminal), and untold political favor(who knows what has been offered in return) are not on solid ground as far as maintaining that market share. The medallion industry definitely has to change but we need the CU's not to shy away from our needs!!!
ReplyDeletePlease. Taxi medallion lending was a joke. The amortization periods were far too long and left all of the risk with the lender. Owners used their medallions like ATMs when the values went up, to continuously pull cash out through bigger and bigger loans, just like irresponsible borrowers did in the housing crisis - they had no skin in the game. Loans were never paid down, they were just rolled at maturity. CUs like Melrose, just lent on collateral - a time tested strategy to ruin an institution. Bankers talk about the 3Cs for a reason - the other 2 Cs help to mitigate risk when unforeseen events, like ridesharing, impact a loan. Medallion owners were huge beneficiaries of dubious lending practices. The outlook for medallion values is highly uncertain as farebox and trip counts continue to fall. If and when a lending market for medallions re-emerges, it will be on vastly different terms, and ones that insure that loans can be repaid out of cash flow in a period of 5-10 years rather than the nonsense that transpired in the last decade.
DeleteThere's 5 C's of credit...
DeleteUsing the same logic, I'm sure Mr. Leggett was also able to correctly predict the demise of Kodak, Blockbuster, Sears, etc.
ReplyDelete