Not long ago, Viresh Ahuja, 40, counted himself a millionaire with an empire built on taxicabs.
Not now. His five cabs are worth next to nothing, running in the red. His house in Upper Darby, where he lives with his wife and two young children, is at risk. Ahuja works all day to earn a handful of $20s, not enough to pay what he owes. He named his cab companies Balaji and Jai Luxmi, after a powerful Hindu god and the goddess of wealth, but these days, he has neither money nor power.
"I feel like I lost everything," he said.
By now, the story of how companies like UberX and Lyft have undercut the Philadelphia taxi market is old news — the story of a business sector dying from market forces, echoing what happened in New York, Chicago, and elsewhere.
But the cabs are still running. These days, though, taxi lenders are also feeling the pain, as the loans they made to finance taxi operating licenses, known as medallions, are defaulting en masse, causing a crisis. Sound familiar? It's a story line right out of the recession, reminiscent of the sudden collapse in the housing mortgage market that caused a deep recession nearly a decade ago.
Like the mortgage mess, lenders drew up medallion loans with huge balloon payments, made to people who couldn't afford them but who never worried about paying them off when they came due in three years. Why? Because the taxi business was golden, generating ample revenue. Meanwhile, just as with real estate, the value of medallions kept rising.
Besides, there was always another chance to refinance.
Until, suddenly, there wasn't.
"Now, these lenders are scrambling to cut their losses, and the people who are left behind are the people who did nothing wrong, other than to work hard and follow the rules," said lawyer Jeremy E. Abay, who represents Ahuja and a dozen other medallion owners.
Those loans have come back to bite their lenders. In Philadelphia, medallion buyers obtained financing through the Melrose Credit Union in Briarwood, N.Y., working with local broker Inna Friedman. She is married to Alex Friedman, general manager of the All City and Checker Cab companies, which dispatches about 750 of Philadelphia's 1,600 taxis.
Before UberX and Lyft entered the Philadelphia market in the summer and fall of 2014, Ahuja could count on $400 to $425 a week from each of his five cabs, more than enough to make his monthly payments to Melrose. Now, he's lucky if he gets $200 a week per cab. One driver owes him for five weeks, another for three weeks. A third has no money for repairs, so his cab makes nothing.
When they don't pay Ahuja, he can't pay Melrose, and now Ahuja's in default, along with dozens of medallion owners in Philly, just as in New York and Chicago. Melrose is in trouble, too.
Melrose's loan portfolio, laden with medallion financing, got so bad that in February, the New York State Department of Financial Services took it over, citing "unsafe and unsound conditions at the credit union." Melrose is also a major medallion lender in the Big Apple and the Windy City.
The department ordered Melrose to produce a plan to "prudently reduce and manage its taxi medallion loan concentrations for New York, Chicago, and Philadelphia to the extent feasible given market conditions."
Market conditions? If only Ahuja and the other owners could sell their medallions, cut their losses, and move on. That might have been possible before UberX and Lyft entered the market, when medallions sold for more than $500,000 each. Now, they're selling for $52,000, according to the Philadelphia Parking Authority, which regulates sales.
Even so, Melrose is moving to collect. Since July 25, it has filed 81 "confessions of judgment" in court against local owners, including Ahuja. Confession is a legal term, part of the loan agreement, initialed by the borrower, that says, Pay now, you can't argue about it in court, and if you don't pay promptly, everything is collectible, not just the medallion, but also the house, yard, and family sedan.
Melrose "pulled the plug on the market, stopped lending, and that further contributed to the lack of liquidity, decreasing prices," said Brett A. Berman, a partner at Fox Rothschild LLP who represents medallion owners, including Alex and Inna Friedman. He declined to comment on Inna's involvement with Melrose.
Melrose also declined to comment.
As early as April 2014, when medallions in Philadelphia were trading above $500,000, federal credit union regulators were worried about a pending "asset bubble" that occurs when property prices significantly exceed the income they generate. In a supervisory letter to field inspectors, the National Credit Union Administration said medallion values were increasing due to low interest rates and liberal underwriting terms, and were not backed by sufficient collateral.
"The real estate market crisis of 2008 demonstrated how quickly a collateral-deficient loan portfolio can impair a credit union's viability," the letter said.
What will happen here? "I don't think anyone can answer that question at this point," said Christine A. Kirlin, director of the Philadelphia Parking Authority's taxicab and limousine division. "While medallion sale prices have dropped, we are still approving private sale transactions. I think everyone is waiting to see how this all plays out. There is a need for taxi service in the city, so I don't think it will go away."
A federal court case in Philadelphia filed by organizations representing 80 percent of the city's taxi companies accuses the Parking Authority of killing the business by allowing UberX and Lyft to run unlimited vehicles without paying fees that regular cabbies do. A similar case, filed in New York by Melrose and other credit unions, was tossed.
In Philadelphia, medallion buyers turned to Inna Friedman for financing. She negotiated with the owners, drafted the documents, and reassured drivers that refinancing would not be a problem. As medallion prices rose, it wasn't.
"Even if you had bad credit, they didn't care," Ahuja maintained.
To be sure, medallion owners weren't combing over the documents. "I don't think any of us read our whole 30 pages" of the loan agreements, Ahuja said. "You just signed the papers. Many cab owners aren't educated. They can't speak English."
In legal papers filed in Ahuja's case, Abay estimates that Melrose lent more than $120 million to Philly medallion owners, alleging that "underwriting for the medallion-backed loans was nonexistent. Indeed, most of the medallion companies who borrowed from Melrose had no prior credit history."
"Melrose created a bubble in the medallion market," the document said. Because the supply of medallions is limited, the price rose, just as it did in New York and Chicago.
Balloon payments demanded every three years meant new loans to pay off those balloons along with new fees for lenders.
"When people are making money, no one is complaining," Ahuja said.
As the situation worsened, Friedman managed to renegotiate some loans to lower interest rates. Shortly after New York state took over Melrose's operations, Friedman's relationship with Melrose ended, Abay said.
Ahuja's journey from poverty to success to financial ruin began in 2000, when he immigrated from New Dehli. "I came here as everyone else comes, like the dream to be in America," he said. A college graduate in computer science, he first worked as a computer technician. That job ended Sept. 11, 2001, when his employer lost business in New York after the terrorist attacks.
Driving a cab proved more lucrative than the computer job he later landed. So he quit and moved to Philadelphia. In 2006, he bought his first medallion, for $120,000. He bought six more, financing and refinancing them all with Melrose, paying points and fees each time.
Ahuja is now in default on two loans, for $845,000 and $675,000.