NJCUL, CUNJ, XCEL Discuss State of Taxi Medallion Issue in ROI-NJ Article

New Jersey Credit Union League President/CEO David Frankil, Credit Union of New Jersey President/CEO and NJCUL Chairman Andy Jaeger, and XCEL FCU interim CEO Arlene Bernard spoke to ROI-NJ magazine recently for a story on taxi medallion loans.

In the article, titled “Taxi Medallion Loans are Backfiring on Credit Unions in Ride-Sharing Age,” Frankil discussed the exposure to these loans the credit unions in the state are facing.

Bernard explained, that though XCEL FCU doesn’t have a large concentration of these loans, it’s still “weathering it.”

Jaeger points out that the 2008 recession is what had a lot of credit unions looking at taxi medallions as a safe bet in the first place.

“Credit unions were experiencing difficulty with a lot of traditional loans in portfolios and so they were looking for other sources of relatively risk-free revenue,” he said. “It was a way of making loan portfolios more diverse and keeping dividends competitive in a time when risks were higher for mortgage loans and other unsecured loans.”

Looking at it from a regulatory perspective, Frankil said that “even though the value has gone down, these loans are mostly still performing.” But “regulators have taken an aggressive approach in requiring credit unions to treat them as assets that are challenged, as if the value has basically fallen to zero.”

The NCUA recently ordered credit unions to increase loan loss reserves for the taxi-medallion loans being held by local institutions, the article points out. Having to put aside resources for potential future losses is putting strain on capital reserves of credit unions, Frankil said. As a result, credit unions are not seeing the same annual returns that they had historically.

But Frankil notes that he understands where the regulators are coming from in their caution about these now-volatile loans. In the end, he hopes it all amounts to a temporary setback for the state’s credit union market.

“Regulators have made sure that credit unions have felt the impact of this already,” he said. “So that means most credit unions are already working through it. And we will come out the other side of it.”

Click here to read the ROI-NJ article in its entirety.