New SF Lawsuit Blames City & Rideshare Companies (Uber & Lyft) for the Death of Taxi

One of the biggest issues that arose with the rise of Uber and Lyft in the US was the value of a taxi medallion. Taxi medallions are a license to operate a taxi in the US. They are state controlled and have a supply and demand value that is limited by the number of medallions released. This controlled release allowed medallions to be priced at $250,000 but in a free market of supply and demand, per-owned medallions could be sold for double that.

Since most of the taxi medallion owners took out a loan to buy the license, the market created a loan intensive market, where the credit backers took the full force of the loan. These loans were considered to be secure since they were reliant on government-based equity. However, unlike bonds, the taxi medallion is not secured equity, it is a license to operate a taxi and is subject to the forces of supply and demand just like any other commercial asset.

This is not how the San Francisco Federal Credit Union (SFFCU) see's it. They are the major backer to thousands of SF cabbies that took out a loan to buy a medallion. They are also the financial organization that has just taken a massive hit when their customers are incapable of saying off the loan on an asset that is now worthless.

The suit is based on a $125 million loan base for over 700 medallions that has foreclosed on over 99 of them, but foreclosing doesn't solve the lack of money situation. So, the SFFCU is now seeking restitution from the SFMTA claiming that their lack of regulating the new rideshare industry is what led to the massive plunge in medallion value. They are basically blaming the SFMTA for destroying a regulated market by introducing a free-for all market, where you can drive for money just like a taxi, get hailed through an app, just like a taxi, and get paid for the ride, just like a taxi, but without regulating the new service. The only difference between a rideshare and a taxi is that a taxi can be hailed in the street rideshare can only be hailed via their app. This, according to the SFFCU does not make a new service different. The core of the new service is identical; a person pays for a ride in a car.

One of the major issues that the SFFCU is basing its claims on is the fact that the SFMTA took $64 million in revenues from the sale of these loan backed medallions, which means that the city is party to the demise in not just negligence, but also in enjoying from the fruits of their negligence. Basically, the city of SF demanded that taxi drivers pay for deregulating their service. And driving them into ruin.

One of the interesting issues surrounding the case is the history of the taxi medallion in SF. At one time a medallion was granted for free, although the waiting list for a new one was 15 years. The others were sold as a commodity by taxi drivers that passed away or sold for gain when retiring or too ill to drive. Then in 2010 the city of SF decided to cash in on this money-making bonanza and shortened the list by selling medallions for $250,000 each. Basically, they created a commercial asset out of regulation.

Since the new asset was so expensive, the city of SF approached many financial institutions to get a backer that would lend money to applicants so that they could sell the medallions. Don't forget that overnight there were thousands of suddenly very rich taxi medallion owners. These new rich asset holders would sell off their medallions for a quick injection of cash.

The SFFCU was the body that agreed to back the SFMTU and finance loans to taxi drivers that wanted to buy a new medallion. The income generated by the taxi drivers during 2012 was intense, a medallion owner would drive one shift and return the car out for two more shifts, making a total of around $9,500 a month income. However, the income dropped to $4,500 in 2016 due to the massive influx of Uber and Lyft drivers, and it also became harder to find second shift taxi drivers, when anyone could revive their own car for free.

From 2013 when the first Uber and Lyft cars started t invade the streets of SF, the city has not regulated them in a similar like to taxi driving. In fact, the opposite has happened, and anyone can drive in SF so long as they meet the rideshare company's requirements.

SFFCU CEO Steven Stapp told the press that "We can't fund taxi loans if (the SFMTA) are going to let the business erode away."

The lawsuit states "The SFMTA repeatedly promised the credit union that it would take steps to reinvigorate the taxi industry." However, by the end of 2016 over 485 medallion holders were waiting to give back their medallion t the SFMTA which is supposed to refund them each $200,000 and this would be collateral to pay back the loan.

The suit is currently being reviewed for trial.