What Donald Rumsfeld Can Teach Us About Medallion Loans
In the immortal words of Donald Rumsfeld, “[t]here are things we know that we know. There are known unknowns. That is to say there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.” With an estimated 122 credit unions holding taxi medallion participations and one taxi credit union in conservatorship, it’s clear that the condition of the medallion industry has emerged as one of the key issues facing the credit union industry. The problem is that there are many known unknowns.
For example, what we know for sure is that the App-based model of public transportation poses a fundamental challenge to the way taxi service has been provided in New York and other cities for more than 70 years. What we don’t know is precisely what services App-based services can legally provide. Most importantly, whereas yellow cabs still have the exclusive right to pick up street hails in the busiest part of the City, the City’s Taxi and Limousine Commission has authorized the use of “electronic hails” which are basically rides arranged using an App-based network such as Uber. Obviously, the more electronic hails are authorized the less valuable medallions become.
Last month, a NY state supreme court judge rejected arguments that the Taxi and Limousine Commission acted illegally by permitting Uber and similar Transportation Network companies to pick up “street hails.” (Glyca Trans. v. NYC). This was a big blow to the industry, but the case took an intriguing twist last week. Crain’s is reporting that the judge has decided to reconsider his decision in light of a recent federal court ruling.
The decision causing the judge to reopen arguments is Illinois Transp. Trade Ass’n v. City of Chicago, No. 14 CV 827, 2015 WL 5610880, Sept. 22, 2015). The case is similar to New York’s, in that the judge rejected claims that Uber and its ilk violated state law. However, the judge went on to rule that the Equal Protection rights of medallion taxis under the U.S. Constitution were being violated.
As a very general rule, laws have to be rationally related to the goal they are trying to achieve and in this case the court ruled that this very low threshold wasn’t satisfied.
Here is the key provision:
“The City argues that TNPs are not similarly situated to taxis because they cannot be hailed on the street, rides are prearranged, there is a pre-existing contractual relationship between the TNP and the consumer, the driver is not unknown to the consumer, and fares are not set by the City. Even a cursory examination of these purported differences demonstrates that these are not material differences justifying disparate treatment of taxis and TNPs. First, with respect to the manner of obtaining a ride, this Court sees no material difference between raising your arm to hail a cab on a street corner and putting your location in an app with a request for immediate transport. Similarly, rides can be prearranged in taxis as well as TNPs. The pre-existing contractual relationship is also an illusory difference since the taxi passenger is immediately bound by a contract of adhesion upon entering the taxi.”
While the decision of an Illinois Federal District Court is not directly binding on a New York State judge, the New York decision was based primarily on an analysis of the administrative authority of the City’s Taxi and Limousine Commission as opposed to a consideration of the Equal Protection Clause.
The ultimate question for credit unions, of course, is what impact a decision in the industry’s favor will have on the value of medallions? That is another question we might not know the answer to for several months.
FBI Urges Caution on EMV Use
The shift of liability from card issuers with EMV technology to store merchants that can’t process in-store EMV transactions is r being greeted with slightly more enthusiasm than Volkswagen sponsoring a clean air rally.
On October 9, the FBI’s San Diego Division issued a press release stating, in part, “While EMV cards offer enhanced security, the FBI is warning law enforcement, merchants, and the general public that no one technology eliminates fraud and cyber-criminals will continue to look for opportunities to steal payment information.” In addition, merchants, who had years to shift to EMV technology, are making a virtue of the fact that they have been so unwilling to adopt EMV technology. In addition, since the release stresses the importance of PIN-based technology, it can easily be interpreted as supporting a central contention of merchants that EMV should have been coupled with mandatory PIN-based transactions. Once again, merchants are winning the PR battle.
Here is the FBI press release: