NYC Council Medallion Task Force Report & New TLC Regulations Impacting Taxi Brokers, Agents, Owners, Drivers & Lenders
At the end of 2018, in response to the rapid decline in taxicab medallion prices and indebted medallion owners, the City of New York created a task force to study the sale prices of medallions. The task force was charged with reviewing sale prices of taxicab medallions and their impact on the City’s budget and then recommending changes to laws, regulations and policies related to medallions.
The Taxicab Medallion Sale Prices Task Force (the “Task Force”), co-chaired by Council Members Ydanis Rodriguez and Stephen Levin, ultimately had 19 members, including fleet owners, driver advocates, academics, and representatives from financial institutions. The 77-page report issued on January 31, 2020 charts the history of the rise and fall of the medallion values, which it attributes to “multiple factors,” including increased competition from services like Uber and Lyft that diminished taxi earnings.
The report also makes several recommendations focused around addressing the financial crisis of “over-indebted” medallion owners and modernizing taxi service to adapt to a marketplace dominated by apps. The report can be access at http://council.nyc.gov/data/wp-content/uploads/sites/73/2020/01/Taxi-Medallion-Task-Force-Report-Final.pdf.
Prior to the issuance of the report, the NYC Taxi & Limousine Commission (TLC) moved forward with sweeping new regulations with respect to taxi brokers and agents, which impact drivers, owners, lenders and others. These new regulations, which the TLC passed after the issuance of the Task Force Report, are described in this article. If you have questions about the impact or compliance with these new rules, please contact me at firstname.lastname@example.org, or 212-237-1106.
Reforming Medallion Lending Practices
The Task Force took a pragmatic approach, addressing issues that have been raised over the past several years, with proposals for concrete action to try to solve the current medallion debt crisis. The group examined the roles lending, borrowing and brokerage practices played in the financial hardship that continues to roil the taxi industry. It then explored possible solutions to the current debt situation.
Among the recommendations, the Task Force stated that additional regulation of the medallion lending industry is “clearly” necessary to “curb risky lending practices and reduce the risk of another debt crisis.” The medallion lending practice reforms included the verification of the borrower’s ability to pay, banning confessions of judgment, prevention of risky debt structures and stricter regulations on taxi brokers.
Many of the recommendations are outside the City’s ability or authority to implement, and changes to state or federal law and policies would be needed. For example, requiring lenders to verify borrowers’ ability to pay and banning confessions of judgment would both require federal legislation.
With regard to preventing risky debt structures, the Task Force recommends policies be implemented at the City, State and Federal levels to connect owner-drivers with financial and legal assistance, ban the riskiest loan terms and debt structures, provide borrowers with disclosures and give borrowers a right of rescission.
New TLC Regulations for Taxi Brokers & Agents
The Task Force also recommended that the TLC adopt the rules that it proposed in October 2019 to amend the agency’s medallion broker and taxi agent rules. The agency voted to adopt those rules on February 5, 2020.
The TLC’s recently-adopted rule revisions implement the recommendations of another report that was previously issued by the City. In response to allegations of medallion broker misconduct, on May 20, 2019, NYC Mayor Bill de Blasio ordered the TLC, the NYC Department of Finance and the NYC Department of Consumer and Worker Protection (formerly the Department of Consumer Affairs) to conduct a 45-day review of the businesses practices of medallion brokers to “identify and penalize brokers who have taken advantage of buyers and misled City authorities” and to set down “strict new rules that prevent broker practices that hurt drivers.” The investigation identified violations of existing TLC rules governing broker conduct, and the report, which was issued on July 2, 2019, recommended regulatory changes at the TLC to ensure brokers act in the interest of their clients and provide greater transparency.
The TLC made the following changes to its rules regarding medallion brokers, which will take effect on March 6, 2020:
“Broker” definition expanded: to include a person or business that negotiates refinancing or the extension or modification of a loan secured by a medallion.
Annual Broker Financial Disclosure Requirements:
- Requires annual disclosure of brokers’ interests;
- Expands the required disclosure of interests to include any interests held by the broker’s spouse, children, parents, siblings and other relatives; and
- Requires disclosure of actual conflicts in any transaction.
- Written agreements are required for any transactions involving a broker or any services provided by a broker and their clients; and
- Brokerage agreements must specify all fees and costs charged by the broker, inform clients of the broker’s duty to act in their interest, disclose any facts the broker knows that impact the value of a medallion, as well as all offers to purchase, and disclose any fees paid to the broker by a third party.
Broker Recordkeeping & TLC Submission Requirements:
- Brokers are required to complete for their clients, and submit within 30 days to the TLC, a plain language explanation of material loan terms for any financing or refinancing.
- The record retention period for brokers has been extended from three years to ten years.
- Brokers are required to submit to the TLC completed broker agreements, including all agreement attachments required by TLC rules and copies of closing statements.
All Broker Activities Now Regulated: The TLC rules apply to all services offered by brokers, including – but not limited to – medallion transfers, broker-facilitated financing or refinancing, and insurance.
Increased Penalties & Restitution: Penalties for violating the TLC broker rules were increased, and brokers are required to provide restitution to clients for certain violations.
The TLC made the following changes to its rules regarding taxi agents leasing medallions from medallion owners, which will likewise take effect on March 6, 2020:
Written lease agreements are required between taxi agents and medallion owners that specify lease amounts and frequency of lease payments, all costs and fees that the agent may charge the owner, and the agent’s obligation to pay fees or taxes as required by TLC rules or the medallion lease agreement for all such fees or taxes incurred during the agent’s management of the owner’s medallion.
Lease Cancellation: Medallion owners must be allowed to cancel the medallion lease agreement without penalty or cost if the agent notifies the owner of its intention to lower the medallion lease amount.
Annual Accountings: Agents must prepare annual accountings for medallion owners itemizing all taxes, fees, insurance, and other costs paid by the agent on the owner’s behalf.
Penalties & Restitution: Agents must provide restitution for any overcharges, underpayments, or missed payments and will face a penalty for failure to pay fees or taxes the agent was to pay.
Addressing the Medallion Debt Crisis – Bailout?
Given the City’s involvement in the medallion market, the Task Force believes the City “should take action to address the medallion debt crisis and help medallion owners who are currently struggling with unsustainable debt.” That said, the Task Force made clear that taxpayers should not bear the burden of bailing out medallion owners. Among the debt relief proposals are a debt purchase and modification program funded by “mission-driven” investors, consideration of a limited medallion buyback program, and free legal and financial services. The TLC is already preparing to open a new Driver Assistance Center that would help medallion owners who are currently burdened with unaffordable debt by providing them with financial counseling and legal assistance.
The Task Force recommends the City bring “mission-driven” investors together to purchase distressed medallion loans through a special-purpose fund with guarantees or insurance policy. According to the report, mission-driven investors are “public or private investors who are interested in helping over-indebted medallion owners and supporting an iconic New York industry while also earning a moderate return.” The only way this works is if lenders are willing to sell distressed medallion loans at a discount and then work with borrowers to restructure the loans – which is in no way guaranteed. The Task Force humbly acknowledges that numerous “important” questions about such a program remain unanswered.
The Future of Medallion Taxi Service
To bring taxis up to speed with their app-based competitors, the Task Force stresses the need for innovation and improved service. As a starting point, the group recommends the TLC rules for technology system requirements should be made more app- and technology-friendly to drivers and riders and that the City facilitate innovation in taxi apps. With regard to innovation, the Task Force suggests making taxis more competitive with app-based services by having a universal taxi app similar to Uber or Lyft and potentially a dynamic pricing model (surge pricing).
There are also proposals to expand and strengthen TLC enforcement, in particular illegal-street hails at the airports. The Task Force specifically recommends that the TLC increase the number of enforcement officers, provide those officers with enhanced training and competitive salaries, and carry out a public safety awareness campaign about illegal street hails.
As next steps, the Task Force recommends that the TLC continue to meet regularly with industry stakeholders and experts in the field to continue discussing the future of medallion lending and taxi service in New York City. This will be needed given that some of these recommendations will require federal or state action. Also, during the new TLC Chair’s confirmation hearing, the NYC Council secured the commitment of the Mayoral Administration to adopt or collaborate closely on implementing the provisions of the Task Force Report, and many efforts are already underway. Big changes are on the way, and more regulation, paperwork and regulatory oversight are guaranteed.
While there might be different opinions on whether some of the rules passed or considered are needed, workable, and/or or whether a bailout is possible or advisable, the overall tenor of policymaking and the government’s approach is to tighten control and take a proactive role moving forward to protect the medallion owner/drivers and their investment. Overall, this is a very positive sign for the future of the taxi industry in NYC, and these new regulations will undoubtedly help strengthen the system and may facilitate the eventual survival, stabilization and comeback of the medallion system. Only time will tell.