Salon: Uber and Lyft’s big new lie: Their excuse for avoiding regulation is falling apart

By Steven Hill, Salon, January 16, 2016

Did Lyft just admit it’s a taxi company after all? Ridesharing companies pretend to be tech firms. They’re not.

Recently Lyft and General Motors made a grand announcement, with all the hoopla meant to convey that this announcement is a really big deal: ta-daaaa, a joint partnership in which Lyft will develop self-driving cars with GM. GM is going to invest $500 million in Lyft, and GM president Daniel Ammann will join the board of Lyft. Never mind that self-driving cars (beyond test cars) will not appear on the streets anytime soon – and possibly never, due to the severe regulatory and insurance hurdles involved in letting a 3,000-pound machine steer itself with no human at the controls. Nevertheless, that big headline dominated the news cycle, which is so titillated by anything Uber or Donald Trump.

Yet the media missed the really big news. It was tucked into the Lyft-GM announcement as a little nugget that no one paid attention to. As reported in the Times:

“G.M. will also work with Lyft to set up a series of short-term car rental hubs across the United States, places where people who do not own cars can pick up a vehicle and drive for Lyft to earn money.”

Stop the presses, say what? Lyft will rent cars to its drivers? As in, instead of a driver bringing their car to Lyft for rideshare profiteering, Lyft will own the cars and provide them to drivers?

Apparently so. Lyft president John Zimmer told CNBC “We have thousands and thousands of sign-ups from individuals whose cars don’t qualify, and so we can now market to those individuals who already applied but didn’t have the right car. This is a really great income opportunity, whether or not you have a car.

OK…but…how…is that…any different from…how a taxi company operates? In most taxi companies, a driver pays a “gate” to a taxi company to rent its taxi for the day or evening. The driver keeps the net of his fares after paying the rental gate, which is usually around $100 per shift. The new Lyft-GM business model sure sounds like a taxi company to me.

In case the import of this still isn’t clear, I’ll spell it out: one of the big claims of Lyft and its other ridesharing competitors, like Uber and Sidecar, is that the reason they should not have to follow the considerable regulations that govern taxi companies is because Lyft/Uber are not in fact taxi companies. According to their view of the world, they are a technology company. They only connect a driver with a passenger as an intermediary; they are a mere software broker of a deal between two separate parties, and so they shouldn’t be regulated like a taxi company.

Look, they have said repeatedly, we don’t even own any cars…so how can we be a taxi company? In fact, Uber changed its original name, which was UberCab when it was founded by Travis Kalanick and Garrett Camp in 2009, to Uber Technologies to provide that regulatory cover.

Regulators in the United States have mostly swallowed this ridesharing whopper, hook, line and sinker. They have treated these companies by a different set of rules than taxi companies. As one obvious example, in most cities the number of taxis roaming the streets is limited by a medallion system. The rationale for limiting the number of livery cars is to keep congestion manageable and the wages of drivers high enough to make some kind of living. But Lyft and Uber have refused to accept any limits on their number of drivers (and hence, notice how the streets in so many cities are now increasingly congested – just a coincidence?).

In addition, Lyft and Uber – ahem, the technology companies – have refused to pay livery taxes and other fees that taxi companies must pay to local governments, which are an important source of municipal revenue. In New York City, for example, taxis pay a fee that helps support mass public transit; Lyft and Uber refuse to pay any of that.

In short, these “non-taxi” companies have fiercely refused to follow virtually any and all local taxi laws, claiming the laws are not applicable because they are technology companies. Consequently, Lyft and Uber have gotten away with using grossly underinsured drivers and faulty background checks (with no fingerprinting, a type of background check that the FBI has estimated has a 43 percent error rate). The district attorneys of San Francisco and Los Angeles have sued both companies because they don’t use what is known as a Live Scan (which includes fingerprinting), the highest standard of background check, which most taxi companies in California are required by law to use.

The lack of taxi-quality background checks has had tragic consequences. An Uber driver hit and killed 6-year-old Sofia Liu, and badly injured her mother and brother, as they were traversing a crosswalk on New Year’s Eve 2013 in San Francisco. Uber immediately washed its hands of any responsibility or liability, claiming the driver was an independent contractor, not an employee. Yet that driver had a reckless driving record in Florida, including being arrested for driving 100 mph into oncoming traffic while trying to pass another car, which Uber’s faulty background check failed to uncover.

Bad things have happened in taxis too, of course, but not being a taxi company has been the whole basis for Lyft and Uber’s avoidance of regulation. Lyft’s latest morphing of its business plan blows its anti-regulation cover out of the water (and usually what one of these companies does, the other copies in a month or two). If drivers are reporting to “hubs” to rent a car from the Lyft-GM operation, how is that any different from a taxi company?

The claim that these companies are “technology” and not taxi companies always was laughable. If you go to places like France, Germany, Spain, South Korea – just about anywhere outside the U.S. – it was obvious to their regulators from the get-go that these companies provide the same service as a taxi company. They might connect the driver with a passenger in a new way, but so what? There was a time when taxis did not have electronic meters in them – when they were installed, did that turn those companies into “technology”?

It’s only here in the United States that regulators have been so gobsmacked and befuddled. “What is this thing, is it a taxi, is it technology, is it from planet Pluto? MY GOD, HOW DO WE REGULATE IT?” No question, regulators in the U.S. have dropped the ball in city after city and state after state. In France, the two national chiefs of Uber are facing jail time for running an illegal taxi service.

Well, now Lyft has done U.S. regulators a big favor. By setting up hubs where drivers can rent cars and then drive for Lyft, the company is making it plainly obvious what should have been obvious all along. These are taxi companies. And they should be regulated as such. These companies have been given a free pass for far too long.

No question, ridesharing is here to stay. Many customers find it helpful, and the service has proved its worth. With a view of our streets as a public utility, ridesharing should be incorporated along with existing modes of transportation. Most likely, taxi services and ridesharing will merge over time, as more taxis start using apps and ridesharing companies start renting cars to drivers. But the days when these two different sectors, which provide the exact same service, are regulated by two different sets of rules needs to end.

Steven Hill, a senior fellow with the New America Foundation, is the author of “Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers.”