“Ugh.”

September 27, 2019 at 9:51 am Leave a comment

That is how a trusted colleague of mine responded to this article in the CU Times reporting that veteran Congresswoman Carolyn Maloney, who sits on the House Financial Services Committee called for a moratorium on taxi medallion foreclosures during a committee hearing dedicated to debt collection practices. In addition, none other than Rep. Alexandria Ocasio-Cortez referred to some of the taxi medallion loans as “criminal.”

These comments are the latest sign that the taxi medallion issue is not going to go away anytime soon. As policymakers discuss how best to aid drivers in financial straits, let’s hope that some basic facts are understood. Most importantly, the medallion crisis cannot be separated from the rise of Uber and Lyft. We would not be having this discussion today if these two companies did not upend the entire structure of the taxi industry and destroy the value of medallions.

In addition, many medallion loans are now being serviced directly by NCUA. NCUA has to do more to publicly explain to policymakers on both the state and federal level what steps it is taking to modify these loans. Many credit unions are working with members, but that message is not getting out to the public as effectively as it should be with NCUA in control of so many of the lending decisions.

Finally, I hope legislators think long and hard before advocating for a foreclosure moratorium. The reality is that the price of medallions has tumbled and may very well continue to do so. A moratorium would do nothing except put further downward pressure on medallion prices, and extend the time it will take to get the medallion crisis behind both drivers and lenders alike. Instead of talking about moratoriums, policymakers should look at the example of the HAMP Program and see if there are mechanisms to assist both lenders and borrowers in making financially responsible modifications. Stay tuned.

A Phase-in for CECL

In addition to a delay in its effective date, another piece of good news on the CECL front is that Chairman Hood has indicated that NCUA will be joining with banking regulators in permitting credit unions to phase in recognition of loan losses triggered by the new standards over a three-year period.

CECL requires financial institutions to recognize lifetime expected credit losses, and not just credit losses incurred as of a reporting date. In addition, it implements a lower threshold for financial institutions to recognize a potential credit loss. As a result, many institutions could experience a reduction in their retained earnings as they increase buffers to guard against potential losses.

Many banks and credit unions have expressed concern that they could face dramatic losses on paper if they are not allowed to phase in the recognition of losses caused by this new standard. Earlier this year, the OCC and FDIC finalized regulations giving banking organizations that experienced a reduction in retained earnings as a result of adopting CECL the option of phasing in its effects over a three-year period. At a presentation before NAFCU earlier this month, Chairman Hood indicated that NCUA will be proposing similar regulations for credit unions.

 

Entry filed under: Advocacy, Compliance, New York State. Tags: , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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