Driving a traditional taxi cab is not an inexpensive proposition because the medallions necessary to do the driving are not cheap. And, as Uber and Lyft have eaten up more and more of the market, drivers are defaulting on their debts.
And that is bad news for the banks who loaned them the money necessary. Such bad news, in fact, that regulators are warning that an insurance fund should be set up soon to step in — because a lot co-op banks are about to go down under the weight of their defaulting taxi loans.
The losses affect some big banks — Capital One, for example, has posted rising losses from the yellow-cab business.
But smaller credit unions are much more exposed because the taxi trade had been, until recently, a very, very stable base from which run their businesses. The fact that the base has turned to sand in the last few years has meant that lenders Melrose Credit Union are now facing liquidation.
According to The Financial Times, the smaller lender has $1.5bn in assets, but its delinquent loans have leapt fivefold over the past two years, to $670m.
“This would be among the largest failures of a credit union ever,” said Keith Leggett, a former senior economist at the American Bankers Association. “It would be very costly. We haven’t seen anything like this since the financial crisis.”
Defaulting drivers and a newly competitive market with ridesharing services that just skipped the medallions entirely has collapsed the value of a medallion. A mere four years ago, a medallion in New York City was a million dollar purchase — these days, they tend to run closer to $250,000.
Rick Metsger, a board member of the National Credit Union Administration, has already begun making noises that the National Credit Union Share Insurance Fund may need to be brought in as part of the solution .
“We are prepared and have adequately reserved for potential losses,” he said. “We are proud to have weathered this disruption to the financial sector.” The National Credit Union Administration said: “During the financial crisis nearly a decade ago, we used the same conservatorship powers to conserve and resolve the problems in four critically undercapitalised credit unions.”