CUNA Blasts NCUA's Decision to Sell Taxi Loans to Hedge Fund

CUNA is questioning the secrecy and wisdom behind the NCUA’s decision to sell the agency’s taxi medallions to a hedge fund.

“[The] NCUA has been working on this for more than 18 months without engagement of the credit union system, despite repeated attempts by CUNA, leagues and credit unions to engage the agency to provide alternative solutions to a fire sale of the medallions,” CUNA Chief Advocacy Officer Ryan Donovan said Friday.

And Donovan said CUNA wants to know why its recommendations of how to handle the loans were ignored, how the agency decided to sell the loans to a hedge fund and the legal authority behind the sale.

The NCUA announced Wednesday evening that it had sold its medallion loans — reportedly in the thousands — to Marblegate Asset Management LLC., a Connecticut-based hedge fund.

In selling the loans to Marblegate, the agency rejected pleas from a New York City Council Taxi Medallion Task Force, which had asked for time to form a public-private partnership that could provide relief to drivers who were having trouble repaying their loans.

CUNA and state leagues representing New York, Illinois, Pennsylvania and New Jersey also had urged the agency not to sell the medallions to a single buyer and to discuss the best solution to the taxi debacle with the credit union industry.

Another credit union veteran appeared even more blunt in his criticism of the decision.

“There will be time to describe how morally corrupt this action is,” Chip Filson, the retired chairman of Callahan & Associates and the former director of the Office of Programs at the NCUA, wrote in his blog Friday. “This action by the agency supposed to protect members would seem right at place in a Dickens novel about debtors’ prisons.”

The NCUA owned the loans because two major credit unions that held a large number of taxi loans — Melrose Credit Union and LOMTO Federal Credit Union — failed because drivers could not afford to repay their debts.

NCUA officials explained the decision during a Thursday board meeting attended by dozens of taxi drivers and medallion owners. The agency also posted lengthy explanations of the sale process on its website.

“As stewards of the National Credit Union Share Insurance Fund, we have an obligation to pursue an orderly resolution of failed institutions, such as the taxi medallion credit unions,” the NCUA said. “The agency has been managing this loan portfolio for approximately 18 months and managing non-performing assets for extended periods is not the NCUA’s role or specialty.”

It said it is “unreasonable and inconsistent with sound public policy” to expect the agency to hold the loan portfolio any longer.

But a key New York City House member immediately condemned the agency action.

“Not only were medallions massively over-valued, but drivers were then left to compete in an uneven market with little to no hope of ever paying off their debt,” said Rep. Gregory Meeks (D-N.Y.), chairman of the House Financial Services Committee’s Consumer Protection and Financial Institutions Subcommittee. “[The] NCUA’s decision to sell off that debt to a hedge fund only compounds that hardship, abandoning them to debt collection practices that will squeeze them for every last dollar.”

Meeks had called on the agency to delay the medallion sale in order to give the task force time to develop a plan to help the drivers.

Having failed to convince the NCUA to delay the sale of the taxi medallion loans, the co-chairman of that task force said he will now try to work with Marblegate in seeking an equitable solution for the drivers.

“They have an interest in a stabilized medallion market,” New York City Councilman Steven Levin said, referring to Marblegate, which reportedly owned hundreds of medallion loans even before purchasing the NCUA loans.

Levin expressed regret that the NCUA did not give the task force time to develop the public-private partnership to purchase the loans and provide relief to taxi drivers whose business has plunged with the rise of ride-sharing services.

He said the city still could form an entity to purchase the loans and provide relief to drivers, who are struggling to repay the loans.

Meanwhile, New York Attorney General Letitia James announced Thursday she has taken the first steps toward suing the city and its Taxi and Limousine Commission for $810 million, charging that the city artificially inflated the value of taxi medallions for many years.

James on Thursday sent a notice of claim for $810 million to the city of New York contending that the city fraudulently inflated the value of taxi medallions over a 14-year period.

“The city not only engaged in a scheme that defrauded medallion owners but continued to further market these medallions at overvalued rates even after internal reports raised warnings about the inflated values,” James’ office said.

Any funds recovered would, in part, provide restitution for drivers and owners affected by the inflated prices.