A Conversation with Rebecca Lytle

I spoke last week with Rebecca Reynolds Lytle, Vice President of Lending at San Francisco Federal Credit Union (SFFCU).

Among other things we discussed the differences between a Gate and Gas and an Owner/Operator arrangement from her standpoint of making a loan to a new buyer. Other subjects came up during the conversation including, of course, her decision to require the full 20% down payment from those who choose the Owner/Operator lease and not accept down payment assistance except on a gate and gas arrangement.


Let Last Be First

It turns out that Ms. Lytle and SFFCU had already decided to require the full down payment from Owner/Operators before TAC voted to do so. The reasons for this were that an Owner/Operator loan:

• Costs more to underwrite and maintain.
• Has little or no way for the credit union to verify that various financial arrangement are, in fact, what the new buyers claim they are.
• Carries a higher risk because of this.

SFFCU wants to reduce their risk by getting the full $50,000 down payment from Owner/Operators.

In order to understand the reasoning behind this, it's necessary to see how these loans are structured.

Gate and Gas Arrangements

Lytle described these are "turnkey" arrangements because the company:

• Buys the car.
• Provides the insurance.
• Does the maintenance on the car.
• Hires the drivers and makes certain that they have good driving records and A-Cards.
• Etc.

The taxi companies are set up to do this and they have a vested interest in making certain that everything is done properly.  Therefore the credit union doesn't have to sweat the details.

Owner/Operators Arrangements

The Owner/Operator has to do all the above himself or herself.

In order to assure the safety of the loan, SFFCU and Ms. Lytle need to make certain that:

• The Owner/Operator owns the car and does have insurance.
• The drivers have A-cards.
• The Owner/Operator is complying with City regulations by not charging more than $104 per shift for a hybrid or $96.50 for a regular vehicle.
• Lytle is also considering getting copies of DMV printouts as supporting documentation that the medallion holder is complying with the Transportation Code.
• Etc.

All this involves considerably more work and thus more cost in terms of labor hours than a GG Loan. And, even after the additional issues, the loan company still has no way to guarantee that the information is accurate or kept up to date - although the credit union does require the Owner/Operator to provide updates on all the above annually, or sooner, if requested.

Because of the uncertainly, Ms. Lytle and SFFCU want to see a greater amount of financial responsibility on the part of an Owner/Operator. Lytle added that it doesn't make any sense to continue allowing  Down Payment Assistance on a loan with this type of lease arrangement when the MTA intends to stop this practice in the next 30 days or so anyway.

Forced into being Owner/Operators?

Prior to 10/14/2010, when SFFCU began requiring the 20% down, Ms. Lytle said that 63% of the loans were to Owner/Operators. She takes issue, however, with people who claim that new buyers have been "forced" by financial necessity into this type of arrangement.

Ms. Lytle pointed out that the $250,000 fixed price was chosen by the MTA requirement that loan payments not exceed the monthly amount that medallion holders are paid by taxi companies. The $250,000 number was arrived at by calculating the size of loan payments and comparing them to Gate and Gas monthly payments. Lytle also indicated that, in order to further validate the worth of the medallion, the MTA's fixed price was compared to medallion markets in Boston, Chicago and Philadelphia - cities similar to San Francisco.

SFFCU so far has made three types of loans;

1. 12 years with a fixed rate for $2,300 a month.
2. 15 years with a 3 year balloon payment for $1,798 a month.
3. 25 years with a 3 year balloon payment for  $1,440 a month.

The monthly payment is slightly higher if the borrower did not have the full 20% down payment and needed the down payment assistance loan. You can view examples of loan payments for all the different types of loans on the credit union’s website at http://www.sanfranciscofcu.com/loans/taximedallion_loan.htm

These numbers are consistent with the amounts that various companies pay their medallion holders.

To the charge that the interest rates will probably rise when the balloon payments become due, it could be said that there will probably be a meter increase before then, meaning that medallion holders will be paid more money.

Satisfaction

Ms. Lytle said that these taxi medallion loans have given her more satisfaction than almost any other loan that she's ever underwritten. They've allowed her to "help these people realize their dreams." The medallion holders or their relatives are "overjoyed" to be able to sell the medallions after thinking that they never would be able to do so. And the new buyers are "so excited" to finally get their medallions.

Ms. Lytle said that she would be more than happy to answer any questions about the loan programs. She can be reached at:

Tel. 415.359.2926   Fax. 415.447.2240
Rebecca_Lytle@SanFranciscoFCU.com

TAC Votes to Limit Down Payment Assistance

On Tuesday October 12, the Taxi Advisory Council voted unanimously (William Minikel and Dmitry Nazarov were absent) to grant Down Payment Assistance only to buyers who choose to work their taxis as "gate and gas" for at least three years. 

The motion to do so was put forward by National Cab's Dan Hinds (photo, left) in order to limit the number of new buyers who operate their cabs as Owner Operators or Affiliates (i.e. owners who operate their cabs as Long Term Leases).

The vote came after a lengthy discussion of the pros and cons of GG vs LTL and the problems of trying to run a full service cab company.

Declining Profits

Desoto's Jane Bolig said that: problems with the EDD (California's Employment Development Department), the costs of medallion holder bidding wars, and the increased number of cabs going LDL were causing declining profits in companies giving full service.

(Her comments on the EDD referred to suits that the EDD had filed against both Luxor Cab of San Francisco and Yellow Cab of San Jose that charged the taxi companies with millions of dollars in back Unemployment taxes.)

Yellow Cab's Jim Gillespie said that the EDD "only has issues" with GG drivers and leaves LTL alone. However, he added that it was possible to structure GG leases in such a way that "doesn't" turn GG drivers into "employees." He gave the practice of having drivers pay for their shifts in advance as an example.

Jane Bolig said that she thought that giving Fleet Medallions to full service companies would be about the only way for them to survive.

Green Cab's Athan Rebelos (photo, left) said that he agreed with the necessity for fleet medallions and added that he'd been in the taxi business in New York City where they had a combination of Fleet medallions and individual medallion holders and suggested that San Francisco follow a similar policy.

But he also said that declining profits were a "national problem" and that in many cities neither the taxi companies nor the cab drivers were making any money at all.

Scheduling Problems

Lease Driver John Han (photo, right) said that he wanted to be a GG driver and that, if taxi companies would actually honor the "Independent" contracts that their drivers sign, fewer drivers would want to become LTL drivers.

Han gave the example of his own shift which is listed as being from 7:00 am to 5:00 pm according to the lease he signed. He usually can't get started driving, however, until 9:00 or 9:30 am - unless he pays the dispatcher "some huge tip."

Council President Chris Sweis chose to describe this as "a scheduling problem." And, indeed, it no doubt is. The company Han works for is clearly scheduling a "short" that overlaps John's shift. The "short" apparently runs from 3:00 am or 4:00 am to 9:00 am. This allows the company to get an additional three or four hours of profitability (not including tip) from the medallion. The "short" takes up part of Han's shift  because the company would be unable to sell the "short" without including the 7:00 to 9:00 morning rush hour.

But I digress ...

Unintended Consequences

Dan Hind's original motion didn't impose any time limit but Jane Bolig said that having a GG taxi wouldn't do Desoto Cab any good unless they could keep the taxi for three years.

Lease Driver David Kahn (photo, right) then proposed an amendment to the motion calling for a three year time limit.

Athan Rebelos backed the motion saying that the Pilot Plan "had been developed around a gates and gas program" and that no one was prepared to deal with so many Owner/Operated taxis hitting the streets at the same time.

The unanimity of the vote came from the perception that the conversion of GG cabs to Owner/Operated leases has been having a negative effect on almost everyone in the business except the new buyers.

• Companies have been losing revenue from cabs.
• Drivers have been losing shifts.

"Warp Speed Scottie."

The Taxi Advisory Council, as its name suggests, can only advise the MTA on a policy. The MTA has to okay a change and then a new policy does not officially take effect for 30 days.

The San Francisco Federal Credit Union, however, already put the new Down Payment Assistance rules into effect on 10/14/2010. As of that date, "Supplemental funds from the down payment assistance provision in the Pilot Program are not acceptable for financing" Owner/Operator (aka Affiliate) leases.