In recent months, there has been a host of commentary about the taxi medallion industry.
When the National Credit Union Administration’s Rick Metsger spoke to a consortium of credit union CEOs in December 2017 about the risks our industry’s deposit insurance fund faces, he focused squarely on the taxi “medallion sector.” In his comments, he said “there is a distinct possibility the industry can lose money due to institutions who lent based on these assets.” Metsger’s comments were justified.
While this might imply that taxicab credit unions have not been prudent with their lending practices, all one has to do is look at the sector’s history over the last 15 years before ridesharing to see that this is simply not the case, particularly at New York based Progressive Credit Union (PCU).
From 1998 to 2013, PCU had an average net worth of 42.5%, a blockbuster figure that was almost four times the industry norm of 11%, and ranked PCU No. 1 compared to all credit unions in 14 out of 15 years. PCU’s return on assets averaged at 3.55%, while the industry showed 0.78%, 4.55 times the industry average. Even better, this unprecedented success was achieved with incredibly low operating expenses. PCU had average operating expenses of 1.58%, while peers had 3.25%. Lastly, PCU had a mere 0.19% net charge-off rate, well below industry 0.65%. All this was achieved within the existing regulatory framework. In fact, PCU regularly provided a series of fiscal stress tests to regulators that showed collateral values dropping 50% and causing no substantive losses or erosion in capital. So, what happened?
Clearly, PCU was prepared for any normal market bubbles or the ebbs and flows of an economic cycle. However, these stress tests, which should have been good enough to guide the credit union policy, couldn’t capture the magnitude of the technological disruption and regulatory failure facing the transportation industry today. The personal transportation industry became de facto deregulated, placing the still-regulated “Yellow Sector” workers and owners at a distinct disadvantage. Income and values plummeted.
The issues created have also resonated dramatically outside of the credit union industry, becoming more than just a banking problem. The situation has now become a human tragedy. As a result of the plunge in income and values, thousands of hard working individuals, many immigrants who for years used the industry to achieve the American dream, are now forced to file for bankruptcy. They have lost their income, equity, and retirement plans or worse — all three. The stakes are very real for these drivers and owners — a fact that has not gotten the attention it deserves. This personal despair culminated in the unfortunate protest suicide of Douglas Schifter, a New York black car driver outside the gates of City Hall in February. In his final days, Schifter railed against the lack of regulation from local municipalities and the state that, he argued, essentially gutted his livelihood. He is one of at least two drivers who took their own lives.
Despite the difficulties caused by deregulation, PCU has bent but will not break.
PCU continues to work with our medallion owner members to stabilize their loans so they can stay in business, all while PCU diversifies its own business in order to continue effectively serving medallion owners and other borrowers.
This is critical, especially since yellow cabs and the medallion sector show no signs of going away anytime soon. In our experience, we’ve found that many medallion owners and operators are not interested in exiting the industry. Rather, they are looking for lenders to work with them on the financing of these still-valuable assets. This constant demand ensures that when the market stabilizes, PCU’s decades worth of experience with medallions will continue to be put to good work in the years to come.
Aside from leveraging our institutional knowledge in the transportation industry, we are also revamping our management team to add additional expertise to actively create a host of new and diversified financial products for our members to use.
Regardless of the challenges faced, the future can be bright — but only if we work together to make it so.
Robert Familant is the Treasurer/CEO of Manhattan-based Progressive Credit Union.