A credit union has been driven into insolvency by the rise of Uber and other ride-sharing apps, as many of its loans, secured by New York City taxi medallions, have fallen into delinquency.
The Melrose Credit Union of Queens, New York, was liquidated on Friday by the National Credit Union Administration (NCUA), the Federal supervisory agency.
The credit union, which had operated for nearly a century, had been in NCUA conservatorship since February 2017. Its financial reports for the first half of 2018 show allowances for loan losses of $260m and a six-month net loss of $172m. Assets of $1.1bn were outweighed by liabilities of just under $1.5bn.
The majority of its loans appear to have been backed by taxi medallions, licences issued by the authorities to allow metered Yellow Cabs — the only cabs that can be hailed on the street — to operate.
Several other New York credit unions are feeling the pain of falling medallion values. One of them, Lomto, is also in NCUA conservatorship.
Five years ago New York taxi medallions sold for over $1m. Recently, as taxis face tough competition from ride-sharing services, medallions have changed hands for under $200,000.
This month, New York City issued a one-year moratorium on new for-hire vehicle licenses, and will use the moratorium period to study the impact on ride-hailing apps congestion, wages and other issues. It is the first US city to impose such a limit on services such as Uber and Lyft.
Melrose’s problems have been building for years.
Melrose, Lomto and another New York credit union, Progressive, alongside Taxi Medallion owners groups, sued the New York Taxi and Limousine Commission and the city of New York in 2015, alleging that the city’s regulatory structure had denied them due process and equal protection, giving unfair advantage to the ride-hailing apps. In the suit, Melrose claimed that as of June 2015 it has interest in 3,110 taxicab medallions collateralising loans totalling approximately $1.56 billion.
The suit was dismissed by a federal judge in March of this year.
In 2016, a joint examination of Melrose by the NCUA and the New York State Department of Financial Services found “significant supervisory concerns relating to . . . unsound banking practices and apparent violations of laws and regulations.” Melrose’s CEO was replaced soon thereafter.
Most of Melrose’s assets will be assumed by Teachers Federal Credit Union of Hauppauge, New York, with the remainder retained by the NCUA. Melrose’s deposits are guaranteed up to $250,000 by a NCUA insurance fund backstopped by the Federal government.
Michael Cohen, President Trump’s former personal lawyer, owns 10 taxi medallions. He recently pled guilty to felony tax evasion, and testified that during the 2016 presidential campaign he was directed by the president to pay off an adult film actress and a former playboy model who claimed to have had affairs with Mr Trump.
The Taxi and Limousine Commission has demanded that Mr Cohen sell the medallions by September 10, as the agency prohibits convicted felons from owning them.