In New York City, these are rough times for taxi drivers but even rougher for drivers who borrowed to buy their medallion, a piece of metal screwed onto the hood of every yellow cab that gives its owner the exclusive right to pick up street hails throughout the city. That right once made it a precious commodity. As demand for taxis grew and the number of medallions stayed relatively flat, its value skyrocketed to more than $1 million by 2014. Since 2014, with technology-based app-hailing car services, the bottom has dropped out.
The current New York City streetscape has more than 63,000 black cars providing rides in the city through five major app services: Uber, Lyft, Via, Gett and Juno. The once burgeoning now dominating business done by Uber drivers in the city has cut into the medallion owners’ revenues, and many shouldered huge debts to purchase medallions which now are valued about $100,000 apiece.
Similar to the sub-prime mortgage crisis of 2008-2009 when millions of homes became “underwater,” (the value of the home fell to less than what was owed on mortgages), the iconic yellow New York City cabs are so underwater they should more correctly be called submarines. On a more somber note, multiple medallion owners in recent years have even taken their own lives in the face of this sea change in NYC medallion economics.
A BRIEF HISTORY:
The city controls the number of medallions — currently capped at 13,587 — to prevent an oversupply of cabs like what occurred in the 1930s when concerns over congestion, reckless driving and cut-rate fares prompted the city to step in. A NYC Taxi Medallion has always been considered an income producing asset by lenders. This means that its value, for lending purposes, is made up of two factors – the income that can be generated by drivers and market conditions.
Private lenders (Rapid Funding, Medallion Funding, Melrose Credit Union, Banco Popular, LOMTO, First Jersey Credit Union, and Capital One Equipment Finance) were financing medallion purchases at up to 80-90% loan to value. The average taxi loan rose to in excess of $600,000.00. The average taxi loan payments rose to in excess of $4,000.00 per month.
A NYC Taxi can be on the road 24 hours a day, 7 days a week. However, this revenue is capped by a finite amount of fares per shift and can only generate a finite amount of fares per month. It is not scalable. From this amount all expenses must be deducted, including the payment on its taxi loan. If a loan payment is too large, no matter how many hours a car is on the road, a point comes where a medallion can no longer generate a profit.
The breaking point came in 2013-2014. Technology-based services cut deep into the Yellow Taxi market. The NYC Taxi and Limousine Commission (TLC) was caught unprepared for the onslaught and were otherwise constrained. The city government as well. Starting in early 2015 the value of a NYC Taxi Medallion began to plummet – dropping by up to 75-85%, down to less than $150,000.00 by mid-2018. These days, it’s difficult to simply unload one.
Many Taxi Owners owe $400-500,000.00 more than their medallions are worth and more and more drivers are having difficulty maintaining their taxi loan payments. Drivers organized and began to lobby NYC and Albany to no avail – taxi owners have sought to sue the city over what they see as an unfair playing field, with little success. In 2018, a lawsuit filed against the city and taxi commission by taxi owners, trade groups and credit unions was dismissed by a federal judge who found that they had failed to show they were denied due process or equal protection. Other measures have also failed. Owners and Lenders are now left to fend for themselves. Technology and the Free Market prevailed. The lenders (ironically, all in conservatorship) are now “suing” medallion owners first and asking questions later.
Furthermore, many of the medallion owner were immigrants – some former doctors and lawyers and engineers in their home countries who in years past put their savings into the purchase of a medallion as such a good investment — ”better than a house.” Now they cannot find enough drivers for the cabs because business is so bad. And many owners, who have retired from driving, have to go back on the road.
Taxi ownership once seemed a guaranteed route to financial security, something that was more tangible and reliable than the stock market since people hailed cabs in good times and bad. Also, it was a hands on investment and those who applied an immigrant’s work ethic made money, building wealth. Generations of new immigrants toiled away for years to earn enough to buy a coveted medallion. Those who had them took pride in them, and viewed them as their retirement fund. The ride-hail apps have upended all that. Just as homeowners faced ruin when housing markets sank, struggling cab owners in Chicago, Boston, San Francisco and other cities are now facing foreclosure and bankruptcy. Nowhere is the crisis more dire than in New York, which has the largest taxi fleet in the country. Medallions now sell for a fraction of what they were worth. Even if these owners sell their medallions, they still owe hundreds of thousands of dollars — far more than in many other cities where medallion prices were lower to begin with.
None of these statistics reflect the hardship — and heartbreak — of individual owners. It is their stories that often get lost in the larger debate over new technology and commutes, and tell of the human cost of the city’s rapidly evolving transportation landscape.
No one predicted that Uber and Lyft would practically bankrupt the individual tax cab owners. Beyond the drastic fall in value of the medallions themselves, the day to day finances are in a freefall as well. Profits are down 30% to 50% since 2014. Yellow taxis made an average of 277,042 daily trips and collected $4 million in fares per day in July 2017, down from 332,231 daily trips and $4.9 million in fares the year before, according to city data. And it’s only getting worse. The once coveted NYC medallion and the iconic yellow cab streaming down the avenues of Manhattan have been relegated to an “asset” without a market, with freefalling value. And uncertainty rules the future. As such, lenders are trending to fewer medallion seizures – undoubtedly a sign that the lender recognizes there are not enough buyers to resell them to and that it makes more sense to go after whatever else the borrower owns, usually a hard, fixed asset – like the home they live in.
It not the fault of any one group of persons or entities, it’s just change. A big change. However, big changes that impact an individual’s life must be addressed and possible solutions, under the law, fully explored. In this spirit, JCKLAW has represented many medallion owners over the years. Each case is, of course, unique but the following options may be available to you:
- WORKOUTS: Negotiate a modification of the loan to lower the monthly payments and deal with arrears to make the loan current. Lenders are getting more and more tough nevertheless this option should be fully explored.
- FILE CHAPTER 7 BANKRUPTCY: Surrender the medallion to the bank or lender and attempt to discharge your future liability in connection with the medallion loan. You have to meet the requirements for a chapter 7 case, namely, you have no non-exempt assets, usually a home with too much equity.
- CHAPTER 13 BANKRUPTCY OPTIONS:
SURRENDERING THE MEDALLION:
You have non-exempt assets. Surrender your medallion and make monthly payments up to the amount of non-exempt assets. Simplified example: You own a home worth $300,000 and have a $100,000 mortgage, leaving $200,000 in equity, of which we can protect about $170,000 of the $200,000 in equity as a “homestead exemption”. You would pay the difference – about $30,000 – over a 3-5 year period through the bankruptcy court. The sum total is that you surrender your medallion, get rid of entire debt for the loan, and keep your house while only making a $500 payment through your chapter 13 plan for 5 years.
KEEPING THE MEDALLION
You can possibly retain ownership of the medallion but this is where it gets tricky. First, there are limits on chapter 13, though. On April 1, 2019, the limits of $394,725 for unsecured debt and $1,184,200 for secured debt was increased to $419,275 for unsecured debt and $1,257,850 for secured debt. (11 U.S.C. 109(e)).
New York City taxi drivers who own taxi medallions that are “underwater” can “cram down” the taxi medallion loan so that the only the portion of the taxi medallion loan equal the value of the taxi medallion. (This is called the secured debt.) The rest of the debt doesn’t go away but instead is treated as unsecured debt. What this means is that the “secured” portion of the taxi medallion loan would be paid in full over a 3 or 5 year period based on your actual income and the unsecured portion would be paid pennies on the dollar if at all. You as a medallion owner would only have to pay the bank what the medallion is worth today and not what is worth prior to Uber and Lyft entering the market.
Example: say the total amount of your medallion loan is $550,000 with an interest rate of 8%. The medallion is only worth $150,000. The amount of unsecured debt is $550,000 minus the secured portion of $400,000. Alas, under the new debt limits as of April 1, 2019 (debt limit changes happen every 3 years), now the unsecured amount owed is under the max allowed.
We would propose a plan to the bank on your behalf to pay off the medallion in a 5 year period. The bank still has a lien on the medallion, but as long as the plan is approved by the chapter 13 trustee and confirmed by the judge if you make your payments you will get to keep your medallion. The plan we would propose is to pay the $150,000 over a 5-year plan. The bank is entitled to some interest and the bankruptcy trustee some administrative fees but the payment you need to make would be about $3000.00 monthly for 5 years.
Finally, even if you are still above the debt limits, there may be options in filing consecutive chapters in bankruptcy – a chapter 7 and then a chapter 13 (a chapter 20!) but this is even a more trickier maneuver and can become very complicated. The point is all avenues should be fully explored to help find an exit strategy from the distressed situation you find yourself in.
Taxi drivers, many of whom are immigrants, invested in NYC tax medallions to help achieve their American Dream. Due to no direct fault of any single person or entity, this American dream, for many, has turned into a nightmare.
If you are interested in finding out more about the various chapters (or types) of protection that bankruptcy law can provide for you as a medallion owner, contact our office at 718-539-1100 or email us at email@example.com.