Share Insurance Fund Could Take Hit, As NCUA Is Left With Melrose Taxi Loans

The Teachers Federal Credit Union did not acquire the taxi loans that contributed to the downfall of Melrose Credit Union when it merged with the credit union—a development that could leave the NCUA Share Insurance Fund on the hook for any losses from those troubled loans.

The NCUA has control over the loans, which are backed by taxi medallions. The value of those medallions has plunged in recent years, as taxicabs have faced stiff competition from ride-sharing companies, such as Uber and Lyft.

The share insurance fund would be responsible for losses from those loans. The amount of those loans was not available Wednesday, but Melrose has some $833 million in commercial loans not backed by real estate—much of that total is likely taxi-related loans.

“The Share Insurance Fund has already reserved for the potential losses from this transaction,” NCUA spokesman John Fairbanks told CU Times.

The NCUA liquidated Melrose Credit Union Friday after the New York credit union lost $744.6 million over the past three years as its taxi medallion loans soured. When the merger was announced, the NCUA simply stated, that the teachers credit union “assumed all of Melrose’s members and shares as well as some loans and other assets.”

However, in a statement to CU Times, TFCU said, “TFCU did not acquire any loans or obligations related to New York City taxi medallions.”

Asked about the taxi loans, Fairbanks said, “NCUA’s Asset Management and Assistance Center is managing the portfolio of taxi-medallion-secured loans. While that process continues, there are no specific figures available.”

Melrose is one of a handful of credit unions with a huge number of loans backed by taxi medallions. The medallions were used as collateral for loans, but the rise of Uber, Lyft and other ride-sharing services caused their value to drop from a high of $1.3 million in 2011 to $181,000 in June.

The New York State Department of Financial Services placed Melrose into conservatorship in February 2017 and named the NCUA as conservator. The credit union lost $290.2 million in 2017 and $171.8 in the first half of 2018.

It is difficult to determine the impact the taxi loans had on the losses. However, in late 2015, Melrose was among the credit unions and taxi companies that filed suit against the City of New York challenging the city’ taxicab and ride-sharing rules.

That lawsuit provides a snapshot of the taxicab losses that Melrose suffered.

In January 2014, Melrose had had aggregate taxicab medallion loan delinquencies of about $32,000, according to the credit union’s attorneys. As of May 31, 2015, delinquencies had soared to $167,704,125. As of June 30, of that year, the delinquencies rose to $202,670,195.

In a report issued in March 2017, CUNA said that the share insurance fund could assume any losses from taxi medallions.

“CUNA’s recently updated analysis of taxi medallion lending concludes that although taxi medallion lending could result in future insurance fund losses, the magnitude of those losses – even in an extreme stress scenario – would have a negligible effect on the health of the NCUSIF,” CUNA said, in the report.

NCUA board member Rick Metsger said in December that he expected that the share insurance fund might take a hit because of the taxi medallion crisis.

“We have known, and warned about, this risk for some time,” Metsger told a roundtable discussion of CEOs held by the Oregon Department of Financial Services said, “but the bill is about to come due. Unfortunately, a lot of credit unions that followed supervisory guidance and lent prudently will have to pay for losses incurred by a small number of credit unions that gambled on a market that was disrupted and a bubble that burst.”