Legal Intern, Manhattan Institute Center for Legal Policy
On Monday, a Saint Louis Judge issued an injunction meant to stop the nationally popular Lyft ride share app from operating in the city and the county. The injunction came down two days after Lyft launched in Saint Louis, disregarding a cease and desist order from the Metropolitan Taxi Commission. On Friday, local police, in conjunction with MTC officers, issued summons and restraining orders to Lyft drivers, who were easily identified due to the conspicuous pink mustaches that adorn the front of their vehicles. Along with tickets, Lyft drivers were also given a list of licensed cab companies that were hiring.
Saint Louis is not the first city to confront ride share programs. Across the nation, regulators have expressed near unanimous concern that the growth of ride share programs might create a wild west scenario, where unknown, underinsured drivers flood the market, creating a public danger. Local governments, to be sure, have a vested interest in regulating the quantity and quality of drivers. Rideshare programs have often exacerbated the situation by refusing to play ball.
Apart from municipalities, taxi drivers have a bone to pick with ride share programs. In Chicago, cabbies have filed suit against the City for allowing Lyft and Uber to operate outside of the regulatory framework, alleging in their complaint that the states failure to enforce the taxi rules against these entities violates equal protection. The drivers also allege, quite reasonably, that allowing free riders like Uber and Lyft potentially devalues the 6800 cab permits in play in the Chicago market, whose aggregate value is estimated at 2.38 billion dollars. In states like New York, dual taxi medallions recently sold at auction for 2.5 million dollars.
Part of Lyft and similarly situated tech firms failure to comply with existing regulations stems from how these companies views themselves in the marketplace. Lyft maintains that they are not a traditional cab service, but a peer to peer ride sharing service, different from what's offered by a traditional cab. Instead of hailing, Lyft allows users to obtain a "Lyft" by connecting with drivers in the area via a mobile app. Users can track the driver on a map until they arrive; at the end of the ride, rather than charging a fare, Lyft suggests a donation. This is deducted from a credit card, and no cash is exchanged. At the end of the ride, both passenger and driver rate their experience. Riders that "under donate" are flagged by drivers and drivers that offer a low level of customer service will be disconnected from that particular passenger and less likely to pick up fares. Lyft drivers whose rating falls below a certain level are no longer permitted to provide "Lyfts," the equivalent of being fired.
Lyft and other ride share programs are part of what's being dubbed "the sharing economy," where individuals use internet applications like Lyft, Uber, and AirBnB to share excess goods and services. Rather than relying on professional cab drivers, Lyft and other sharing economy applications allow regular users to make optimal use of excess economic resources to serve a community need. In Saint Louis, the average Lyft driver is described as "someone who works during the day and drives at night to pay for beer or cover student loans." Advocates for such companies argue that the use of real time input by users incentivizes rigorous self-regulation, with real time feedback provides data that helps maximize the possibility of providing a positive customer experience. Lyft is a good example. Although it has so far refused to comply with the Saint Louis law that requires drivers to be vetted by the city, Lyft's website details its rigorous driver driver safety standards, including interviews, DMV and Criminal background checks, a zero tolerance drug and alcohol policy, and a robust insurance policy.
Whether or not this sort of self regulation will prove adequate, it's clear that applications like Lyft have been able to recognize what's important to their users, and adjusted their business model accordingly. In the process, they've sparked innovation in formerly stagnant marketplaces, placing regulators and existing firms at a disadvantage. Writing at Forbes about Lyft competitor Uber's struggles with regulators, Larry Downes sums it up rather well:
The benefits of closely overseeing ride services are obvious--or, at least, were obvious when rules went into widespread existence starting in the early 20th century. They include ensuring that drivers and their vehicles are safe and adequately insured, that passengers are charged reasonable and predictable fares, and that limits are placed to protect drivers and riders alike from having so many vehicles for hire on city streets that no traffic can actually move.
The costs of removing competitive pressures from industries are also significant. Chief among them: in the absence of market dynamics, there are few if any incentives to innovate. Why should the driver of my last cab ride spruce up his vehicle, when every taxi at the cab stand charges the same fare and goes whenever its turn comes up? When price is controlled and new entrants are prohibited, only a fool would spend money to differentiate their product or service.
Writing at nextSTL, Alex Ihnen notes that although Lyft is not complying with the current regulatory model, it hopes to work with Saint Louis supervisors to shape regulations that it believes are more suitable to its business model. However, Ihnen notes that the MTC has had problems reaching agreements with other ride share programs in the past. Uber departed the marktplace after dubbing the conditions unsuitable to their business model. New York based Carmel is currently the only mobile app driven service operating in compliance with MTC regulations.
One thing is certain: the popularity of these firms will force regulators and market participants to work together to establish a new regulatory framework that can keep pace with these rapidly developing technologies. Janelle Orsi, an Oakland based attorney and director of the Sustainable Economies Law Center, sums up the legal quandary that is the sharing economy quite well. Writing at Post Growth, she notes:
...for now, the sharing economy exists almost entirely in legal grey areas. Zoning, securities, public utilities, health and safety, and employment laws aren't usually barriers to feeding, housing, lending a hand, and giving a ride to our family and friends. But they are barriers when we engage in the same activities as commercial businesses, such as restaurants, hotels, or taxis. Everything happening in the sharing economy lands somewhere on a spectrum between what is regulated and what is not. I love that about the sharing economy. The fact that it defies legal classification is proof that the sharing economy is new and different