Posts tagged ‘taxi medallions’

Six Take-Aways From CUNAs GAC

Back from another year at CUNAs GAC. Every year I try to highlight some themes that emerge so here is my list of the six (6) things I learned at this year’s conference:

    1. Get those DORs done. Don’t be surprised to see NCUA taking a tougher approach to your credit union when it comes to following up on Documents Of Resolution. One of the big takeaways from the report of NCUA’s Inspector General about the collapse of the NYC taxi credit unions is that NCUA should have acted more promptly to enforce long standing DORs. Anecdotally I talked to a lot of credit union people and some of them said they are already seeing this trend.
    2. Taxi medallions are an even bigger issue than I thought they were. It would have been impossible to be at the conference the last few days without hearing about taxi medallions. This has not been true over the last few years. Both Chairman Hood and Board Member McWatters defended the agency’s decision to sell the medallions to a private equity firm, just as New York State was beginning to focus on ways to stabilize the medallion market. The big questions that remain are: How much flexibility are the new medallion owners going to extend to troubled borrowers? How much is the sale going to impact the sale price of medallions? And precisely why did NCUA feel that now was the best time to sell off these assets?
    3. Alice Through the Looking Glass and the CFPB. In a presentation to the conference, CFPB director Kathy Kraninger laid out an ambitious agenda on issues ranging from qualified mortgages to payday loans even as her own bureau refuses to defend the constitutionality of its leadership structure in a case pending before the Supreme Court. I’m telling you folks, when it comes to the CFPB, be careful what you ask for. Do you really want to wake up in a world in which the legality of all those mortgage regulations you have been implementing for the last 10 years are in doubt?
    4. I know subordinated debt isn’t the most exciting issue but I continue to believe that it is one of the most important facing the industry. The Association will shortly be coming out with a survey seeking feedback on the pending NCUA proposal which would allow complex credit unions access to secondary capital for purposes of meeting their risk based capital requirements while at the same time codifying guidance making it more difficult for low income credit unions to access subordinated debt. The agency has to see if it can balance these competing concerns in a way that does not exacerbate the differences between big and small credit unions.
    5. The more things change, the more they stay the same. There are so many issues on which there should be a bipartisan consensus but Congress is still unable to get things done. I’m thinking about data security and marijuana banking, in particular. We all know that there is a huge political divide in this country; I wonder how many people realize that this perpetual ideological warfare hurts industries and consumers regardless of what party they belong to.
    6. If there is a better politician in New York than Senator Chuck Schumer, I have not met him.

 

February 27, 2020 at 9:33 am 1 comment

NCUA’s Bulk Sale Of Medallions Raises As Many Questions As Answers For Impacted CUs

In 1975 the New York Post responded to the news Gerald Ford had rejected New York City’s request for a financial bailout with the headline: Ford To City “Drop Dead”.

I was thinking of this headline as I saw the news that NCUA has finalized a bulk sale of NYC medallion loans to private investor Marblegate Asset Management LLC. The sale will have an impact on the industry as a whole, those individual credit unions holding participation interests, borrowers looking to refinance and the efforts of policy makers seeking a solution.

While we can debate the merits of NCUA’s decision, what is abundantly clear is that the agency wanted out of the medallion market and the potentially high profile role it would have had to play as New York City and potentially the legislature look for ways to help out underwater taxi medallion owners/drivers. As it explained in this Q&A

“After thorough research and careful consideration, the NCUA determined this sale was the most appropriate action to meet its statutory obligation under the Federal Credit Union Act to achieve the least long-term cost to the National Credit Union Share Insurance Fund.

Of equal importance, this sale also provides borrowers and their families greater certainty about the management of their loans. Private entities have specialized skills and greater resources and flexibility to work with borrowers in ways the NCUA cannot.”

Now we have to see how great an impact this has on the credit union industry as a whole as well as those individual credit unions holding interest in medallion loans. Suffice it to say, we are in unchartered territory. Although the NCUA would not disclose the sale price, the WSJ reported Wednesday that the NCUA portfolio included 4,500 loans, 3,000 of which were New York City medallions. The bulk sale was for $350 million. Although NCUA stressed in the above Q&A that the sale does not affect the “carrying values” of the medallions—an accounting term-of-art—it’s important to keep in mind that the fair market value of assets is often different than the “carrying value” of the assets.

Both CUNA and the New York Credit Union Association urged NCUA not to go forward with a sale precisely at the moment when stakeholders in New York are seeking to devise a framework to purchase the loans and presumably stabilize the medallion prices. While NCUA’s sale does not preclude further efforts, press reports indicate that Marblegate is not buying the medallions to sell them but to see if it can modernize the medallion industry into a viable competitor against Uber.

Finally, according to NCUA, Marblegate has committed to working with borrowers. Stakeholders have grumbled for more than a year that NCUA has not been flexible enough in modifying loans. Perhaps with the loans in private hands this will change.

February 20, 2020 at 10:07 am Leave a comment

NCUA Looking to Unload Taxi Medallions

Hello, folks.

This goes into the “don’t shoot the messenger” category, but in case you missed it, Crain’s New York Business (subscription required) reported on Friday that NCUA is looking to sell off both their New York and Chicago taxi medallion loans. The paper is further reporting that a potential buyer is private equity firm Marblegate.

We are all in somewhat unchartered water when it comes to the medallion issue, but it is likely that if NCUA sells their medallions in bulk, the resulting price will result in at least some credit unions having to write down the value of their medallion participation interest. In addition, it is at best unclear what impact the sale would have on efforts to renegotiate loan terms with cab drivers. NCUA has faced criticism from some credit unions and taxi drivers who claim it has not been flexible enough in negotiating new loan terms.

Bernanke: Fed Has Stimulus Flexibility

As an armchair economist wannabe, I have wondered for quite some time now what the Fed will do when the country once again enters an economic downturn. After all, unless you believe that the business cycle has come to an end, you should be anticipating a slowdown in economic activity within the next couple of years.

Consequently, those of you interested in this subject should take a look at this recent blog post by former Federal Reserve Chairman Ben Bernanke. In it, he argues that the Fed has the resources to provide the equivalent of a 3% drop in interest rates, even without formally dropping the target funds rate any further. Furthermore, he suggest that, maybe, just maybe, there may be scenarios under which it is acceptable for the Fed to tolerate an increase in inflation above its current target ceiling.

January 13, 2020 at 9:10 am Leave a comment

My Kind of Town?

Chicago’s taxi medallion industry is in even worse shape than New York’s, and New Yorkers are to blame. That’s my synopsis of a lengthy article by the New York Times published over the weekend, in which the Times details the dramatic rise and fall of Chicago’s taxi medallion industry, which has caused hundreds of people, many of whom are drivers, to declare bankruptcy. Furthermore, the paper continues to argue that the investment and lending practices which caused medallions to inflate was so reckless and predatory that the loans would have collapsed with or without the rise of Uber and Lyft.

As with the previous article on New York’s taxi medallion industry, the practices of certain credit unions, as well as banks and other lenders, is a part of the story. “As prices rose, lenders flocked to Chicago. Three credit unions that had long provided loans to most New York medallion buyers all came, along with new players in the industry, including Actors Federal Credit Union from New York. So did bigger institutions such as Capital One. Medallion Financial, the Manhattan company, expanded its presence in Chicago.”

The First Monday in October

It’s that time of year again. The Supremes are back in session. Although this promises to be an extremely high profile session, with cases on abortion and immigration to be decided by June, so far, there isn’t much that directly impacts your credit union on the agenda.

A colleague of mine who is also a regular reader of this blog recently predicted that credit unions will be facing an increasing number of ERISA lawsuits. As a result, one of the cases that I will be keeping an eye on is Thole v. U.S. Bank, in which the Court will decide whether a participant in a defined benefit pension plan has standing to sue the plan’s fiduciary for alleged mismanagement, where the plan in question is overfunded. This might not seem like the most relevant question- okay, it’s not- but credit unions are being subjected to more and more ERISA related lawsuits, and the question of who can bring these lawsuits and when is important.

A second case, which the Supreme Court will be hearing arguments on today, will answer the question of whether Title XII of the Civil Rights Act prohibits discrimination based on a person’s sexual orientation. Altitude Express Inc. v. Zarda is a consolidation of lawsuits brought in New York and Georgia. The case is particularly important for those of you who work in states that don’t prohibit discrimination on the basis of sexual orientation as a matter of state law. For those of us in New York, the case is an interesting example of the interplay between New York’s Human Rights Law and federal protections.

October 7, 2019 at 9:23 am Leave a comment

“Ugh.”

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.

 

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

Post Mortem Of Taxi CU’s Likely To Result In Greater MBL Scrutiny

Even if you have never been anywhere near a medallion loan, if your credit union engages in member business lending, expect even more scrutiny of your lending practices. That’s my overarching takeaway after reviewing the report of NCUA’s inspector general analyzing the demise of Melrose CU, LOMTO CU and Bay Ridge FCU which costs the share insurance fund $765.5 million. I’m going to highlight those parts of the report which might have the greatest operational impact on credit unions, particularly those that aggressively offer member business loans.

Get used to hearing more about NCUA’s Enterprise Risk Management. The inspector general recommends that NCUA institute a more formal process to identify and document concentration risk both within credit unions and among groups of credit unions to spot loan “concentrations” that could potentially pose a significant risk to the Share Insurance Fund.

Expect more aggressive examinations even if your credit union is doing just fine. Prior to 2014, all three of these credit unions were well capitalized. According to the inspector general, examiners involved in the supervision of these credit unions felt they had insufficient grounds to take formal enforcement actions against these credit unions for repeatedly failing to comply with Documents Of Resolution because the credit unions enjoyed profitability and strong capital positions. Not true concluded the inspector general who notes that the existing regulatory framework in “no way limits the authority of the NCUA Board or appropriate state official…to take additional supervisory actions to address unsafe or unsound practices or conditions” irrespective of how well capitalized credit union is.

Expect more scrutiny of concentration limits. As I know readers of this blog are well aware, credit union MBL balances are generally capped at the lesser of 1.75 of a credit union’s net worth or 12.25% of the credit union’s total assets. One of the exceptions to this requirement is for credit unions “that have a history of primarily making member business loans” as of September 1998. Ironically this provision was included in the law primarily to accommodate taxi credit unions.

However all credit unions are still subject to 12 CFR 723.8 which limits the aggregate amount of outstanding business loans which can be lent to any one member or group of associated members to 15% of a credit union’s net worth unless they get a waiver. The inspector general’s report is critical of the failure of examiners to take steps against these credit unions for not complying with this prohibition. It complains that credit union management was allowed to disregard examiner findings.

For me, the bottom line is that regulators have concluded there are more lessons to be learned from the demise of these credit unions than simply a failure to recognize the threat posed by Uber and Lyft before it was too late. Like it or not, no matter how responsibly your credit union executes its MBL program, expect examiners to put your program under the microscope if they haven’t done so already.

April 3, 2019 at 9:30 am 2 comments

PenFed Gobbles Up Progressive

Well it’s official. Uber claimed another victim yesterday with the announcement that New York City based Progressive Credit Union has merged into the $24 billion Pentagon Federal Credit Union (PenFed) putting an end to the last of New York’s taxi medallion credit unions which for decades were among the most profitable cu’s in the state as they specialized in making loans for the purchase and resale of the medallions which were required if you wanted  to drive NYC’s iconic yellow cabs. 

I haven’t been able to find any official statements from PenFed yet, but the CreditUnionTimes is reporting that PenFed has agreed to take on all of Progressive’s medallion loans which is good news for those of us concerned about the impact that the demise of medallions could end up having on the Share Insurance Fund. It is also reporting that Progressive’s CEO and Treasurer will stay on to head the credit union’s New York State operations.

I’m assuming that the merger allows the credit union to operate under Progressive’s open charter which means that the credit union can now take on members from anywhere in the country without regard to their military affiliation consistent with safety and soundness. A similar deal was reached with NCUA when another of the medallion credit unions, Montauk Credit Union, merged into Bethpage Federal Credit Union on Long Island. Teachers Federal Credit Union also acquired an open charter when it acquired the assets of taxi medallion credit union Melrose last year but that credit union’s purchase and assumption did not include the acquisition of Melrose Credit Union’s medallion portfolio.

With the lightning-quick instincts for which I grudgingly admire them, the American Banker’s Association issued a statement decrying the merger as the “latest example of large credit unions far exceeding their original mission to serve targeted communities of modest means,” said ABA EVP Ken Clayton. “This not only hurts small credit unions playing by the rules, but also taxpayers who are unknowingly subsidizing this national expansion.”

 

 

January 3, 2019 at 9:29 am Leave a comment

Older Posts


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.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 653 other followers

Archives