Uber, Lyft take down not just cab driv­ers, but also lenders

Kuwait Times - - BUSINESS -

NEW YORK: Ride-hail­ing apps such as Uber and Lyft have been so dis­rup­tive to New York City’s taxi in­dus­try, they are caus­ing lenders to fail. Three New York­based credit unions that spe­cial­ized in loan­ing money against taxi cab medal­lions, the hard-to­get li­censes that al­low the city’s tra­di­tional cab fleet to op­er­ate, have been placed into con­ser­va­tor­ship as the value of those medal­lions has plum­meted. Just three years ago, cab own­ers and in­vestors were pay­ing as much as $1.3 mil­lion for a medal­lion.

Now they are worth less than half that, and some medal­lion own­ers owe more on their loans than the medal­lions are worth. “You’ve got bor­row­ers who are un­der wa­ter. This is just like the sub­prime loan cri­sis,” said Keith Leggett, a credit union an­a­lyst and for­mer se­nior econ­o­mist at the Amer­i­can Bankers As­so­ci­a­tion. LOMTO Fed­eral Credit Union, which was founded by taxi driv­ers in 1936 for mu­tual as­sis­tance, was placed into con­ser­va­tor­ship by the Na­tional Credit Union Ad­min­is­tra­tion on June 26 “be­cause of un­safe and un­sound prac­tices.”

New York City has the na­tion’s largest taxi in­dus­try, with more than 13,000 medal­lions. Marcelino Hervias bought his medal­lion in 1990 for about $120,000 and thought its value would hit $2 mil­lion by the time he was ready to re­tire. In­stead, the 58-year-old said he owes $541,000 and is driv­ing 12 to 16 hours a day to make ends meet. “I cel­e­brate my kids’ birthdays over the phone. Why?” Hervias said. While some medal­lions are held by large own­ers with fleets, own­ing a sin­gle medal­lion was long seen as a ticket to the mid­dle class for im­mi­grants like Hervias, who is from Peru.

Many of them now owe more on their medal­lion loans than they orig­i­nally paid for the medal­lions be­cause they used their eq­uity in the medal­lion for a home, a child’s ed­u­ca­tion or other ex­penses. Hervias said he bor­rowed against his medal­lion to pay for med­i­cal care for his mother, a new car and a visit to his home­land. “Ev­ery time we want to go on va­ca­tion or do some­thing, where do we go? To the eq­uity of the medal­lion,” he said. Other medal­lion own­ers tell sim­i­lar sto­ries.

Con­stant Granvil bought his medal­lion for $102,000 in 1987 and said he now owes more than $300,000 to his len­der. He could have sold the medal­lion for two or three times that a few years ago, “but I said no, I’m not go­ing to sell it,” said Granvil, who is 76. “And then I got caught.” The value of Granvil’s medal­lion is hard to pin­point be­cause 2017 sale prices have var­ied from the $200,000s to the $500,000s depend­ing on whether lenders are will­ing to fi­nance the pur­chase.

Medal­lion loans

Mean­while, Granvil, who no longer drives be­cause of poor health and uses a bro­ker to hire a driver, said he is fac­ing threats from the len­der, Mel­rose Credit Union, to fore­close on not just his medal­lion, but also his house. “How am I go­ing to live?” he said. “And now Mel­rose wants to take my house?” The New York State De­part­ment of Fi­nan­cial Ser­vices took pos­ses­sion of Mel­rose Credit Union in Fe­bru­ary and ap­pointed the NCUA as con­ser­va­tor.

Crit­ics say the fed­eral agency is play­ing hard­ball with medal­lion own­ers like Granvil, who have been mak­ing their pay­ments, by de­mand­ing that they pay off their loans in full or face fore­clo­sure. “They’re ap­proach­ing it with this cookie-cut­ter idea,” said David Beier, head of the Com­mit­tee for Taxi Safety, an as­so­ci­a­tion of taxi leas­ing agents. “They want you to mort­gage your house to them as col­lat­eral. It’s forc­ing bor­row­ers into bank­ruptcy.” John Fair­banks, a spokesman for the NCUA, said that the agency has hired a man­age­ment team to run Mel­rose and that it would be in­ap­pro­pri­ate to com­ment on the man­age­ment team’s ac­tions.

Sup­port­ers of the yel­low cab in­dus­try have sued and pushed for city leg­is­la­tion to try to level the play­ing field be­tween taxis and ride-hail­ing apps, which they say en­joy ad­van­tages like not pay­ing a pub­lic trans­porta­tion im­prove­ment sur­charge that’s levied on yel­low cabs and not hav­ing to out­fit a per­cent­age of cars with dis­abled-ac­cess fea­tures. City Coun­cil mem­ber Yda­nis Ro­driguez, who chairs the coun­cil’s trans­porta­tion com­mit­tee, called this week for a panel to in­ves­ti­gate the fall in medal­lion values.

Ac­cord­ing to a Mor­gan Stan­ley re­port, there were 11.1 mil­lion yel­low cab trips in the city in April 2016, com­pared with 4.7 mil­lion Uber trips and 750,000 Lyft trips. The 11.1 mil­lion taxi rides were 9 per­cent fewer than the April 2015 num­ber. Some ob­servers be­lieve that the yel­low cab’s mar­ket share will con­tinue to shrink and that the value of a medal­lion won’t re­cover. “This is a com­mod­ity that has been fun­da­men­tally dis­rupted,” said Leggett, who has writ­ten about medal­lion loans in his on­line news­let­ter Credit Union Watch. “I don’t see the value of the medal­lions get­ting close to what they were.”—AP

NEW YORK: In this photo, taxi driver and taxi medal­lion owner Marcelino Hervias poses for pho­tos with his taxi­cab on New York’s Up­per West Side. —AP pho­tos

NEW YORK: In this photo, the medal­lion of taxi driver and taxi medal­lion owner Marcelino Hervias is af­fixed to the hood of his taxi­cab on New York’s Up­per West Side.

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