Taxi lender: Capital One 'destroyed' lending, resale market for Chicago taxi medallions

Accusing the lender of choosing sides in the turf war between Uber and Chicago’s taxi drivers, a business specializing in making loans to help taxi drivers acquire or keep their medallions has sued Capital One for allegedly breaking its contract and, in the process, effectively gutting the market for such loans in Chicago and slashing the resale value of the medallions.

On May 19, Transit Funding Associates LLC (TFA), together with a number of Chicago taxi operators, filed a complaint in Cook County Circuit Court, alleging fraud and breach of contract against Capital One and several of its affiliates.

“Capital One’s actions have destroyed both TFA’s business and the Chicago taxi medallion market,” TFA asserts in its complaint. “As a result, the market value of medallions fell dramatically, impairing the most important asset for many taxi drivers – the collateral supporting TFA’s lending facility – and imperiling the critical role played by taxicabs in Chicago’s infrastructure.”

The suit arises more than a year after TFA alleges McLean, Va.-based Capital One first abruptly altered its arrangement with TFA, and, without warning or explanation, began denying loans it had made previously freely over preceding years to “eminently credit-worthy” and “hardworking” taxi operators who, TFA said, were working “to achieve the American Dream.”

According to its complaint, TFA had been present in the Chicago market since 2006, working at that time with Cole Taylor Bank to offer up to $20 million in loans to aspiring and existing taxi drivers to help them obtain the city-issued medallions they need to legally operate taxis in Chicago. Such medallions, which can be transferred from one taxi operator or owner to another, have been sold for as much as $300,000, the complaint states.

However, TFA said Capital One, which had previously been absent from the medallion-loan business in Chicago, approached TFA about shifting its affiliation from Cole Taylor. TFA said Capital One at that time offered a credit line of $35 million.

TFA made the switch, and began loaning to taxi drivers using financing through Capital One.

From 2009-2013, Capital One increased TFA’s credit line to as much as $80 million, allowing Capital One and TFA to grow the partnership into the dominant player in Chicago’s taxi medallion lending market.

All told, TFA estimated in its complaint the venture resulted in profits of about $15 million for Capital One, spurring the partners to even look into expanding their venture to Miami.

While that venture never materialized, TFA said all indications through 2013 led its principals to believe Capital One had committed to the partnership in Chicago over the long term.

However, in early 2014, Capital One abruptly began declining loans for new medallion purchases and medallion loan refinancing, which TFA said cab drivers typically must do every three years to avoid foreclosure on their medallions.

When TFA asked Capital One about the denials, Capital One bluntly told them it was no longer interested in lending for the purchase of Chicago taxi medallions.

In the months since, TFA alleges Capital One has also proven resistant to helping TFA “wind down” its lending operations, insisting on extra-contractual terms, such as field inspections and audits of local taxi companies who served as TFA’s guarantors, and additional deficiency payments and other charges, totaling more than $1.6 million.

As a result of Capital One’s sudden withdrawal from the Chicago taxi medallion lending business, TFA said other lenders have also pulled out of the market, leaving Chicago taxi drivers with ever dwindling options for acquiring the financing they need to support their business, “depriving thousands of hard-working Chicago taxi drivers of what is often their sole source of income.”

In its complaint, TFA notes Capital One’s sudden about-face regarding its interest in lending to Chicago taxi drivers coincides with Capital One’s announcement of its partnership with ride-sharing service, Uber, which competes with traditional cab operators for fares.

Capital One, for instance, has offered such promotions as free rides through Uber to acquaint customers with Uber.

TFA said Capital One’s actions represent a pattern of “fraud and deception,” as TFA alleges in its complaint Capital One knew in 2013 of its intentions to speed away from the Chicago taxi business, but instead “intentionally lulled (TFA) into the false belief that their relationship would continue unchanged and that (TFA and Chicago’s taxi operators) could rely on the continued support of (Capital One.)”

TFA seeks an award of unspecified monetary and punitive damages and an injunction prohibiting Capital One from foreclosing against the medallion owners.

TFA has requested a jury trial.

They are represented by attorneys Steven F. Molo, Robert K. Kry and Hassan A. Shah, of Chicago, and Bruce Zirinsky, of New York.