Chicago Taxi Problems Blamed on Capital One

     CHICAGO (CN) – Ride-sharing app Uber has taken a lot of heat for the recent downturn in the taxi industry, but a new lawsuit says Capital One and its capricious lending activity is the real culprit in Chicago.
     Transit Funding Associates and its affiliates brought the complaint Tuesday against
     Capital One in Cook County Circuit Court.
     Calling itself “a major force in providing medallion loans in the Chicago market” since 2006, Transit Funding, or TFA, says it partnered with the “multibillion-dollar East Coast financial” industry on financing those loans in 2009 because “Capital One was eager to break into that market and wanted to exploit TFA’s existing infrastructure and resources, which included relationships with over 2,500 medallion owners.”
     Capital One allegedly wooed TFA by nearly doubling the line of credit it had with its former bank – a limit Capital One has raised continually over the years, according to the 39-page lawsuit.
     Business was good for everyone, TFA says, noting that Capital One’s share of the profits from their joint venture “exceeded $15 million.”
     Once Capital One had TFA totally dependent on it for support, however, the bank “abruptly repudiated its commitments to the joint venture, leaving TFA high and dry” in early 2014, the complaint alleges.
     In April of this year Capital One announced a partnership with Uber, the major competitor to taxis, giving its banking customers discounts on rides through 2016. Uber launched in Chicago in late 2011, and its drivers are not required to hold medallions.
     Because of its then dominant market position, Capital One’s “wholesale withdrawal caused a liquidity crisis” in the market, according to the complaint.
     TFA says “other lenders, alarmed by Capital One’s exit, started to withdraw as well.”
     Prior to Capital One’s abandonment, medallion values were “at or near an all-time high,” according to the complaint.
     TFA says the “market value of medallions fell dramatically, impairing the most important asset for many taxi drivers,” a population that it notes consists of “hard-working people truing to get ahead … [and] achieve the American dream.”
     Data compiled by the Chicago Dispatcher shows that taxi medallion prices in Chicago averaged $61,000 in January 2007, and steadily rose to $322,000 in January 2014, By January 2015 prices had dropped to $202,000.
     “Capital One’s actions have destroyed both TFA’s business and the Chicago taxi medallion market,” the complaint states.
     TFA says the bank had planned to pull out for a long time but “fraudulently concealed those plans from TFA until the last possible moment.”
     With no source of funding in sight, TFA says it began to wind down its loan portfolio, and that it has “fully complied” with its Capital One agreement, “making all interest payments due.”
     But Capital One again proved that it cannot be trusted, TFA says, noting that the bank “has insisted on burdensome and time-consuming field examinations of loan guarantors that exceed the scope of due diligence” their agreement allows.
     As it “unreasonably delayed the closing process,” Capital One has “arbitrarily demanded that TFA contribute approximately $1.1 million as a condition of proceeding,” according to the complaint.
     TFA says its wind-down agreement with the bank “requires no such payment.”
     Though medallion values have already crashed, TFA says it cannot raise cash by selling them anyway because Capital One is “refusing to release its liens on them.”
     TFA says neither it nor its guarantors “would have participated in the joint venture had they known that Capital One planned to fundamentally alter the nature of the parties’ relationship.”
     The plaintiffs seek punitive damages for breach of fiduciary duty, breach of contract and fraud, among other charges.
     They are represented by Steven Molo with Molo Lamken and Manhattan attorney Bruce Zirinsky.
     Capital One declined to comment on the lawsuit.

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