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A Closer Look at the Ride-Sharing Services Controversy in Chicago and Illinois

05

June

2014

In recent years, the regulation of ride-sharing services such as Uber and Lyft has become a controversial topic in major metropolitan areas, including Chicago.

On the one hand, many argue that regulation stifles these innovative alternatives to traditional taxi and limo companies – or else eliminates their ability to operate altogether. Others argue that regulation is needed to ensure public safety.

In this article, we want to take a closer look at what these ride-sharing services are all about, present the arguments both for and against regulation and review regulations that could soon take effect in Chicago and across Illinois.

Black Cars and Pink Mustaches

There are many ride-sharing services in the country today. Uber and Lyft, however, appear to be the fastest-growing companies. Bloomberg recently reported that Uber’s value is at $3.5 billion and stated that the company is seeking funding that could soon boost that figure closer to $10 billion. A Wall Street Journal article estimated Lyft’s value to be at roughly $700 million.

Neither Uber nor Lyft claim to be transportation companies. This is important. Because they are not the same as taxi and limo companies, as the ride-sharing services claim, they should not be subject to transportation industry regulations.

So, if not transportation companies, what are they? If you ask officials from Uber and Lyft, they would probably tell you that they are technology companies. They basically provide users with a smartphone app that allows them to connect with drivers who use their own personal vehicles to transport them.

Uber started in San Francisco in 2009. The company provides riders with five different options, including UberBlack (luxury cars like a Cadillac XTS) and UberX (everyday cars like a Honda Accord). Users can simply tap a button, track their driver’s location and then pay the driver by credit card using their phone. The rates vary by option, and riders can get fare estimates. You can see the Chicago rates here. Drivers and riders alike can also rate each other after the ride.

Lyft started in San Francisco in 2012. The company solely involves linking users of its smartphone app to drivers with their own personal cars. Those cars must have the company’s trademark “pink mustache” displayed. Lyft collects “donations” for rides in some cities and charges fares in others. Chicago is a city where set amounts are charged. As with Uber, Lyft riders can pay by credit card using their phone. Riders and drivers can also rate each other.

Arguments for Regulation

Many have argued that Uber, Lyft and other ride-sharing services are, in essence, operating as taxi or limo companies and should be regulated as such or else barred from operating within a city or metropolitan area.

It should be no surprise that these ride-sharing services have faced opposition in nearly every city they have entered. Chicago is no exception. In fact, Chicago cab drivers took the step of filing a lawsuit in federal court in February, as Bloomberg reports. (Illinois Transportation Trade Association v. The City of Chicago, 14-cv-00827, U.S. District Court, Northern District of Illinois).

The main public safety concerns appear to be driver training, vehicle inspections and the existence of insurance coverage should ride-sharing drivers cause an accident. (See this story about an accident involving an UberX driver in San Francisco.)

Several news articles have come out that suggest there is, indeed, a need for greater oversight and regulation.

For instance, according to Jon Brooks of the KQED San Francisco news blog, several UberX drivers told him that, before bringing aboard drivers, the company does not:

  • Inspect vehicles (instead, it reviews photos of cars supplied by the drivers)
  • Observe applicants actually driving
  • Train drivers on safe driving techniques.

And while Uber states that its “driver partners” must go through “a rigorous background check that leads the industry,” an NBC5 Chicago investigation in April painted a much different picture.

In that investigation, the TV station used UberX drivers and ran their own background checks on them. The station found that each driver had prior tickets for violations such as speeding and running lights. One driver had 26 tickets.

Additionally, NBC5 interviewed a woman who was approved to be an UberX driver despite the fact that she was serving probation at the time after pleading guilty in 2012 to “nearly beat[ing] a woman to death.”

The station also spoke with one UberX driver who had been previously convicted for burglary and disorderly conduct and another driver who had pled guilty to a DUI charge in 2012.

The investigation did not look into Lyft drivers. However, like Uber, Lyft states that it also conducts background checks of the drivers it connects with riders.

As far as insurance, Uber provides driver liability coverage of $1 million as well as $1 million in uninsured / underinsured motorist (UM/UIM) coverage, which covers the period from trip acceptance to drop-off. Additionally, the company says that it provides bodily injury insurance in the amounts of $50,000 per person ($100,000 per accident) and property damage insurance of up to $25,000 per accident when drivers are logged onto its network and available to accept a ride.

Lyft provides “contingent liability” coverage (up to $50,000 per person and $100,000 per accident bodily injury; up to $25,000 property damage) that applies whenever a driver’s app is on. Once the driver receives notice of a rider match, other insurance policies kick into effect, including excess liability coverage and UM/UIM of up to $1 million per occurrence.

Supporters of regulations believe that it would lead to tighter oversight of hiring, training and supervising of the drivers who partner with ride-sharing services. Hopefully, it would prevent the use of drivers like those revealed in the NBC5 report. They also believe regulations would eliminate any “insurance gaps” that may arise – not only with Uber and Lyft but with any other ride-sharing service that enters into the marketplace.

Arguments against Regulation

While many have called for regulations, others have passionately argued against it. In fact, as the Beekeeper Group blog points out, ride-sharing services have benefited from social media campaigns that have successfully countered efforts to impose regulations in areas such as Washington, D.C.

As many point out, ride-sharing is simply a part of a new economy that allows people to share and profit from their available resources much like Airbnb.

In an eloquent piece, Forbes columnist Larry Downes describes why cities and states should “give innovation a try” instead of regulating ride-sharing services.

According to Downes, “incumbent” cab companies faced by “disruptive technologies that could vastly improve their quality, efficiency and profitability” have instead responded by trying to drive out ride-sharing services.

In his view, regulation leads to service providers like these “incumbents” having no incentive to improve what they offer. This is why ride-sharing services should be left alone and allowed to innovate as they compete with each other and cab companies for a bigger share of their markets.

However, it should be pointed out, even Downes agrees that some regulation is needed for the sake of ensuring public safety.

What Is Being Proposed in Chicago and Illinois?

Facing pressure from both sides – ride-sharing companies and taxi companies – lawmakers in Chicago and Springfield have taken steps to put regulations into place.

As the Chicago Tribune reports, the City Council last week approved an ordinance that would take effect in August. In addition to requiring $1 million in commercial auto liability insurance, the law would put ride-sharing services into two classes:

  • Class A – Companies whose drivers average no more than 20 hours per week; the city would need to approve the company’s background checks, driver training, vehicle inspection and drug testing procedures; there would also be a $10,000 license fee.
  • Class B – Companies whose drivers average more than 20 hours per week; the city would conduct its own background checks and drug tests; vehicles would need to pass a “21-point inspection;” and there would be a $25,000 license fee.

According to the Tribune, cab companies say the regulations don’t go far enough. Uber, for its part, voiced support for the regulations on its blog while, at the same time, expressing dismay at the “ongoing anti-competitive efforts in Springfield by the taxi medallion owners to end consumer choice and protect their monopoly.”

The blog is referring to two bills (H.B. 4075 and H.B. 5331) that recently passed the state House and Senate and are waiting on Gov. Pat Quinn’s signature.

As the Chicago Business Journal reports, this legislation would divide ride-sharing drivers into two categories as well. It would require any driver who exceeds more than 36 working hours in a two-week period to get a city chauffeur’s license and registration plates as well as comply with all state and local regulations, including vehicle inspections. Drivers would also need to carry at least $350,000 in commercial liability coverage.

While a spokesperson for the Illinois Transportation Trade Association voiced support for the legislation, according to the Illinois News Network, a Lyft spokesperson suggested that it would have a detrimental effect, saying the regulations would impact more than 63 percent of its drivers who work more than 18 hours per week.

It remains to be seen what would happen to the Chicago ride-sharing ordinance if Gov. Quinn ends up signing the two bills into law.

The Bottom Line: Public Safety

So, as you can see, there are valid arguments both for and against regulation of ride-sharing services and differing views on those that could soon take effect in Chicago and across Illinois.

At Salvi, Schostok & Pritchard P.C., our focus is on making sure that all motorists, passengers, bicyclists and pedestrians are protected.

This means that we support any measures that are taken to prevent dangerous or unsafe drivers from being on the roads. It also means that we support efforts that are being made both within the ride-sharing industry and by lawmakers to ensure that those injured by careless or reckless ride-sharing drivers will have funds available to recover for their losses.

Regulation, in this sense, would not stifle innovation but rather serve the important function of keeping us safe.