My Secured Transactions students are often surprised to learn that a taxi medallion can serve as collateral for a secured loan. But taxi medallion lending is a big business: at the end of the 20th century, fewer than 30% of cabdrivers in New York City owned their medallions outright; most owned them subject to a loan secured by the value of the medallion. For years, New York encouraged investment in medallions, as they were thought to be an incredibly safe investment due to the monopoly yellow cabs had on the streets of New York. The City targeted immigrants in particular, promising them a way to “own a piece of New York.”
However, the last decade or so has brought crisis to New York City’s taxi drivers. Over a five-year period, the value of taxi medallions shrank from over $1 million to less than $200,000. As might be expected, the arrival of Uber and Lyft in New York City in 2013 and 2014, respectively, contributed to this precipitous drop in value. For decades, New York only allowed its iconic yellow cabs to respond to hails, but when the New York Taxi & Limousine Commission said that e-hails were different from street hails, Uber and Lyft came onto the scene, and yellow cab drivers no longer had a monopoly.
When medallion prices crashed, medallion owners blamed the city. Many went on a hunger strike. Some even took their own lives. Others sued—and lost—in the Second Circuit, alleging that New York’s regulatory regime for taxis violated their equal protection and due process rights, and arguing that they suffered a taking due to the change in policy with respect to e-hails. The New York Attorney General even threatened to sue the City for state law violations, including fraud and unlawful profit, although this threat never ripened into an actual suit. New York City responded by negotiating a loan reduction deal between medallion owners and their secured lenders.
The deal, negotiated in 2021 by then-Mayor Bill de Blasio and Senator Chuck Schumer, is designed to eliminate over $200 million in medallion owners’ debts. The deal was struck with a Connecticut-based investment firm, Marblegate Asset Management, although other lenders may decide to join the program. Medallion owners that take the deal must pay $1,234 a month on their reset loans. Each restructured loan also has a 5% interest rate and a monthly payment ceiling, and the City has guaranteed the principal and interest.
Although the Marblegate deal certainly helps many medallion owners, it seems unlikely to bring an end to medallion-related litigation. Another taxi medallion lender, O’Brien Staley Partners/OSK, has sued, alleging that the New York Taxi Workers Alliance has been trying to “coerce” it into restructuring its medallion loan portfolio, even in cases where its borrowers can pay (and are paying) their loans.
The medallion crisis, and New York’s response to it, raise a number of interesting questions. To what extent is New York City responsible for the medallion crisis? Certainly, New York promoted the sale of medallions, particularly to immigrant cab drivers, and undoubtedly, the policy that differentiated e-hails from street hails has had a huge effect on traditional cab ridership. This all translates into an effect on medallion prices—and one that in particular affects immigrants and their families. If New York is responsible for creating, or at least exacerbating, the medallion crisis, to what extent was it the City’s responsibility to devise a solution? Medallion lending is typically a two-party affair between the medallion owner and the secured lender; having a city get involved seems highly unusual, though certainly not unwelcome from the perspective of medallion owners.
Yellow cabs are synonymous with New York City; as Mayor Eric Adams put it, “There is something iconic about our yellow cabs.” It’s clear the City felt some responsibility to its drivers to sort out the crisis its policies had spurred. Perhaps the biggest question this all raises is this: if New York will go to these lengths to help its taxi drivers, what else can and should it be doing to help other groups harmed by its policies?
Ultimately, time will tell whether this City-sponsored debt restructuring is effective, and the future of New York City’s yellow cabs is by no means secure. All that said, I’m intrigued by the lengths the City went to provide assistance to these drivers, and I’ll be watching to see both the repercussions (positive and negative) of this program, as well as any future debt restructurings the City might wish to become involved in down the road.
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