Frequently Asked Questions on the NCUA’s Sale of Its Taxi Medallion Portfolio

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 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 is unreasonable and inconsistent with sound public policy, and the principles of an orderly liquidation for the NCUA to service this loan portfolio any longer.

The NCUA believes it can meet its statutory obligation of minimizing potential losses to the Share Insurance Fund, as well as provide certainty to borrowers and the taxi medallion market by executing a sale of these assets at this time.

The NCUA started the loan sales process in September 2019.

The NCUA has been as transparent as possible while upholding its responsibility to protect borrowers’ confidential and supervisory information as required by our regulations and federal law.

In addition, to meet its statutory obligation of conducting an orderly liquidation, the NCUA decided to offer these assets for sale discretely in an attempt to ensure the best value, to prevent any unnecessary volatility in the already stressed taxi medallion market and to avoid any additional stress on medallion holders and their families.

The NCUA will not disclose the sale price. The agency believes this will prevent any unnecessary volatility in the already stressed taxi medallion market and avoid additional stress on medallion holders and their families.

The failure to achieve an orderly liquidation at the lowest long-term cost would violate the NCUA’s congressionally mandated mission of protecting the Share Insurance Fund.

Over the past several months, NCUA has spent considerable time, money, and resources in its coordination with possible investors, which has led to a fair and market-based proposal. If the NCUA were to stop the process, we would have created significant legal, reputational, and counterparty risk for the agency. These risks would carry over to future asset sales and would likely result in the NCUA not being able to maximize recoveries for the Share Insurance Fund because future offerings from purchasers would be heavily discounted due to a perceived risk that a sale could fail.

While the task forces’ proposal was not conceived in time to bid on this transaction, NCUA’s decision to sell does not restrict the city or any other private entity from potentially purchasing these assets at a later date.

The NCUA is confident it is dealing with reputable investors who have demonstrated experience in working with distressed portfolios. The NCUA vetted the credentials of all bidders and eliminated potential buyers that did not demonstrate a capability and willingness to work with borrowers. The NCUA also contracted with a third party to perform extensive background investigations to confirm the reputation and other representations made by each bidder. Further, the process required potential buyers to attest to their background, experience, and asset management plans.

The firm selected provided sufficient evidence that they have a history of working with borrowers to provide relief where possible and that they would observe all applicable consumer financial and borrower protection laws and regulations.

The NCUA has a statutory duty established by Congress in the Federal Credit Union Act to protect the Share Insurance Fund. It is generally not appropriate for the fund to assume costs beyond what is necessary to resolve failed institutions in an orderly manner.

To date, the failures of Melrose Credit Union, LOMTO Federal Credit Union, and other taxi medallion credit unions have cost the Share Insurance Fund nearly $750 million.¹

Federally insured credit unions contribute to the fund and maintain a corresponding asset on their books equal to one percent of insured shares. Any decision that could increase the risk to the Share Insurance Fund creates a downstream effect on all federally insured credit unions, which will have to pay for these losses in the form of potential insurance premiums. These insurance premiums would be a significant expense for credit unions, as those funds could have been used for more productive purposes, such as loans and other investments in their communities.

With more than half of all federally insured credit unions serving low-income fields of membership, this creates a genuine and unnecessary burden on those that can least afford to pay.

The agency evaluated a variety of approaches, including holding and servicing the loans, bulk sales, pool sales, structured sales, and securitization. However, after careful consideration, investor outreach, and consultation with an independent financial advisor, the NCUA determined a singular bulk sale would be the best option to meet our objectives and requirements. The agency took appropriate steps to ensure this transaction involved multiple bidders so we could get the best price and maximize any potential recoveries to the Share Insurance Fund.

The NCUA’s sale does not affect the carrying values of these medallions. Credit unions should continue to seek guidance from their certified public accountant to ensure these loans are recorded on their books properly, consistent with the credit union’s specific posture and with generally accepted accounting principles.

The agency conducted substantial due diligence on prospective bidders to ensure that only those with the experience and reputation for servicing distressed commercial debt were considered. Private entities have specialized skills and resources that government entities, like the NCUA, do not possess. Additionally, private entities have more flexibility to work with borrowers in ways the NCUA generally does not.

Taxi medallion holders and their families need and deserve certainty and continuity in regards to these existing loans. Having the NCUA service these assets over the long-term is not in the best interest of borrowers. Therefore, the agency took the necessary steps to conduct a comprehensive search to find an owner that could service borrowers as quickly as possible, and in a good-faith manner.

The final bidder has provided sufficient evidence they will work with borrowers, including providing loan modifications, to assist them. The NCUA expects the buyer of these assets to implement fully their asset management plans that were certified as accurate and presented in good faith during the selection process.