When they initially voted for the 2008 $700 billion federal bank bailout, Utah’s U.S. senators considered the bill a necessary evil to free up the nation’s hemorrhaging credit markets. After the bill’s passage, Sen. Orrin Hatch, R-Utah, called on the U.S. Treasury to ensure transparency in the disbursement of taxpayer dollars to sickly financial institutions. Without such disclosure and oversight, Hatch wrote to former Treasury Secretary Henry Paulson in January 2009, “We are undermining the intent of this law and the trust of the American people.”
While it may be a daunting challenge for federal investigators to see how funds have been used by the hundreds of banks taking part in the Troubled Asset Relief Program (TARP) in the case of one bank, at least, it should be a piece of cake. Hatch himself could simply call his son Brent, who sits on the board of directors for Medallion Bank, a Salt Lake City lender that specializes in “nonprime recreational vehicle lending” according to its Website, and which, in February 2009, also received $11.8 million in TARP funding.
The Economic Emergency Stabilization Act of 2008, brought forward in the waning days of the Bush administration, divided Utah’s federal delegation, with Republicans Hatch, Sen. Bob Bennett and former 3rd district Congressman Chris Cannon supporting the bailout while Rep. Jim Matheson, D-Utah, and Rob Bishop, R-Utah, opposed it. Supporters argued that without the help, failing banks would pull the economy into an abyss-like depression, dragging consumers and businesses with it.
After the bill’s passage, in November 2008, a wave of financial institutions began preparing applications for TARP funding. While bailout proponents characterized many of those banks being “too big to fail,” the Salt Lake City Medallion Bank didn’t exactly fit that mold. Medallion, insured through the Federal Deposit Insurance Corporation, is a specialty lender advertising itself as the “nonprime” industry leader in recreational-vehicle lending—helping consumers who have had difficulty in obtaining financing for the purchase of RVs, boats and motorcycles.
Medallion also finances hearing-aid loans as well as taxicab licenses. Medallion CEO John Taggart, who says he speaks on behalf of Medallion board member Brent Hatch (who declined to comment for this story), denies implications of political favoritism. “Senator Hatch’s office is not involved in the decision process, and none of our board members were asked to contact or approach anyone in the government,” Taggart says. “I would question whether Sen. Hatch even knows our bank got TARP funds.”
In an e-mailed response from Sen. Hatch’s office, spokesman Mark Eddington confirms this, saying the senator had no knowledge that the bank his son serves as a director for was seeking TARP funding.
“Senator Hatch’s vote in favor of the Troubled Asset Relief Program came long before anyone knew which institutions needed or would receive money,” Eddington writes. “Swift action by Congress was necessary to avoid an immediate, deep recession and possibly a depression.” He also says Hatch had no contact with the treasury department about institutions needing funding, and that the senator also opposed the release of funding for the second wave of TARP recipients including Medallion, which received its funding in late February.
Hatch stated his opposition in a Jan. 7, 2009, letter he wrote to former Treasury Secretary Paulson where he demanded greater transparency in how TARP recipients were spending taxpayer funds; otherwise, he would not support the authorization of the remaining $350 billion in TARP funds.
In comparison with other banks, Taggart doesn’t consider Medallion’s funding to be very significant. While the Treasury secured $11.8 million in preferred stock in the company (meaning the treasury gets priority in dividends paid out but doesn’t have any say over who’s elected to the board), other banks in Utah and across the nation have claimed much greater TARP support. Zions Bancorporation, for example, received $1.4 billion. “We’re a small fish to fry,” Taggart says. “I wish we had that kind of money.”
Financing an industry geared toward what some might consider luxury items would seemingly put a specialty lender like Medallion at a disadvantage in the current economic climate. But Taggart wouldn’t say his company was struggling.
“Absolutely not,” Taggart says. “The FDIC recognized us as a well-run institution, [that] we could lend more into the community—which was the initial purpose of the TARP funds.”
Others disagree, however.
“TARP was supposed to bail out banks that were a functioning and important part of the economy and, if they vanished, the housing market wouldn’t recover,” says Tony Sanders, a professor of business at Arizona State University and a former director at Deutsche Bank. He has also testified before multiple federal hearings on the transparency of the TARP program. Sanders believes a lender like Medallion would have difficulties in a recession, but he’s skeptical as to why they would be receiving TARP funding. “My question is: Is Medallion Bank pivotal to our economy?” adding that, “I would not want to be the person in charge who made the decision to bail them out—it seems a very strange use of taxpayer money.”
Sanders says, in general, the TARP program has strayed from simply propping up vital financial lenders. “[Now] it’s like a big candy bowl with everyone sticking their hands in to get as much candy as they want,” he says.
Taggart, meanwhile, says Medallion simply followed the same rules as any other TARP applicant and recipient, having had to file monthly reports with the treasury department on its progress in lending to the community, thanks to TARP support.
As for how bailout dollars have affected Medallion´s lending, Taggart’s response is measured. “It’s certainly given us the opportunity to lend more,” he says. “But it’s a difficult environment to lend in with the recession.”
