Regulation catching up with the ride-sharing industry

By Bill Holloway

As Uber, Sidecar, and Lyft ride-sharing services have expanded their reach into cities across the world, questions about if and how they should be regulated have followed close behind. Taxi drivers have been concerned that the new services will be unfairly advantaged if they are able to avoid the regulations that govern existing taxi services. Questions about driver background checks and insurance coverage have also loomed over the industry.

Recently, a number of U.S. cities and states have begun taking action to regulate these services in ways that allow them to operate but require them to meet licensing, registration, vehicle, and insurance requirements.

Illinois may soon have some of the nation’s tightest regulations for ride-sharing services.  The rules, which have been passed by the Senate but have not yet been signed into law by the governor, require ride-share drivers to carry the same amount of liability insurance as taxi drivers and specify that insurance policies must be in effect from the moment ride-share drivers log on to accept rides until they log off. The insurance requirements were in response to questions from insurance associations about the point when the ride-share service’s commercial insurance takes over from a driver’s personal insurance, and to prevent gaps in coverage. In addition, ride-share cars will have to be marked with special license plates and stickers. Ride-share drivers working more than 36 hours every two weeks will be subject to more stringent regulations akin to those affecting taxi drivers: they will have to get public chauffeur’s licenses, pass more rigorous criminal background checks, and, most galling to the ride-share companies, their cars will be subject to safety inspections and cannot be more than four years old.

The City of Chicago, the primary market for ride-share services in the state, recently set its own new rules for the industry, which parallel those proposed by the state but go somewhat further. The ordinance, which passed May 29th, gives the city the ability to cap “surge” prices charged during peak periods of demand, requires all ride-share drivers to undergo background checks and vehicle inspections, and to pay license fees of $10,000 or $25,000 depending on whether they work more or less than 20 hours per week. Reactions to the ordinance were mixed. While a representative for Lyft supported the ordinance for creating a legal space for ride-sharing services in the City, Uber criticized the legislation as pandering to the taxi industry. Cab companies criticized it for not going far enough.

Colorado is set to pass a law similar to Illinois’, which covers many of the same issues, with insurance coverage requirements being the issue of most concern. However, a number of other states have seen proposed legislation fail, with Arizona’s governor citing the potential insurance coverage gap as a reason for her veto.

In Madison, Wisconsin, SSTI’s home base, Uber and Lyft began operating earlier this year until the City cracked down, first issuing statements that the companies were violating taxi regulations, and later issuing citations totaling $1,317 for one driver from each of the companies who gave rides to plainclothes police officers. Following the citations, the ridesharing services are continuing to operate in the city and have told their drivers that they will cover any citations issued by the city for illegal operation. An ordinance legalizing the services is in the works. Along with the insurance and background check issues, there is the concern that ride-sharing services will “cherry-pick” the most profitable fares, undercutting cab companies, which are required to serve all parts of the city 24/7. As Madison Mayor, Paul Soglin, puts it, “it’s not profitable keeping a cab on the road in the middle of the night,” and the city would eventually lose this service if it allowed ride-share services to encroach on the industry’s profitable segments without providing 24/7 citywide service.

Bill Holloway is a Transportation Policy Analyst at SSTI.