Capital One Adjusts Taxi Underwriting as Rideshares Disrupt the Market

Capital One Financial Corp. is making changes to its commercial taxi medallion lending portfolio by restructuring loans to protect its collateral as rideshares disrupt the industry, Chief Financial Officer Scott Blackley said on the company’s second quarter earnings call last week.

“We’re working aggressively with our borrowers to restructure loans where possible; we’re taking steps to make sure that we’re protecting our collateral,” he said. “I think the allowance and our charge-off levels are indicative of where prices are today, but there’s certainly a risk that if this market doesn’t stabilize that we could be subject to further write-downs if we see fair values and prices drift further south.”

For comparison, a New York City taxi medallion sold for $241,000 in early April — marking the lowest value of the 21st century, according to a published report. The $241,000 is less than one-fifth of what the cab-ownership tags were going for four years ago. Taxi medallion pricing has been diminishing ever since rideshares, like Uber and Lyft, entered the scene a few years ago.

Capital One increased its loss allowance for taxi medallion loans and leases to $100 million in the second quarter, up from $86 million the prior quarter.

“It’s well understood that with the arrival of Uber and other competition that there’s a lot of pressure,” Blackley said.

Capital One continues to be “very vigilant” when watching market trends to see how mobility-as-a-service models will disrupt the industry, added Richard Fairbank, the bank’s chief executive.

“I think if you think about the auto business and some of the longer-term issues — all the pressure from the tech companies on things like ridesharing … and in the long term, driverless cars — … I think we all have to be very vigilant about the impact of technology changes,” he said.

The quality of technology in many cases allows cars to last longer, Fairbank added, “but the question is, will there be a tipping point where the old cars just don’t cut it and the new ones are so much better?”

Capital One and other banks in the space have not been good about “pulling up” across all of the lending businesses to ask: “What is the impact [on the bank], given that industry after industry is being revolutionized?” Fairbank said on the call. “If we just go and make one loan at a time and do our nice underwriting standards we could wake up and have a lot of rude surprises like we did in the taxi business.”

As such, Capital One is putting a lot of energy into is“instituting not only the conversation but instituting a risk management process associated with the extraordinary revolution that’s happening in our industries, in our clients’ industries, and in some of our core businesses,” he said. “It’s a great challenge.”

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