California Paves The Way For Ridesharing Regulations

By Pete Rizzo, Editor (@pete_rizzo_)

Ridesharing startups have attracted millions of users by promising to reinvent how consumers solicit transportation, and investors are taking notice. Just last week, industry frontrunner Uber revealed its Series C investments pushed the company past the $3.5 billion valuation mark, and its closest competitor is nearing $300 million after just one year of operation.

Discounting the differences in funding though, ridesharing startups remain united by a common problem: the legal grounds on which they operate remain the subject of fierce regulatory battles.

However, that debate took a big step toward being put to rest last month. On July 30, the California Public Utilities Commission (CPUC) issued a proposal that would create a new category to cover “ridesharing” startups.

The announcement came at a time when many cities across the country are looking for guidance on how best to regulate the disruptive companies. If approved, the legislation could serve as legal groundwork that helps other municipalities set legal guidance for the ridesharing industry going forward.

Under the proposal, Uber, Hailo, Lyft and SideCar would be treated as “transportation network companies.” This would represent a separate category from “transportation charter parties” such as taxis and limousines, in what was widely seen as a big win for the burgeoning industry.

What specific new regulations would the proposal mandate, how is the industry reacting and how are ridesharing companies preparing for the transition? In this PYMNTS.com Report, we spoke to some of the major players in this ongoing saga to find out more.

The Regulatory Battle Over Ridesharing

The complaints against ridesharing companies are wide-ranging, and include allegations that they fail to provide vehicles with the necessary insurance coverage, conduct substantive background checks or complete thorough safety inspections on the vehicles they approve for the service.

Because of these issues, Colorado has moved to enact restrictions that would essentially ban mobile transportation apps from operating in the state after they drew the ire of taxi and limo providers. Airports in San Francisco have barred the new services from their grounds for similar reasons, while New York has approved Uber and Hailo for a year-long trial after initial hesitation in December.

The Federal Trade Commission (FTC) has issued direction to regulators, warning that they risk reducing competition and stifling innovation by regulating the sectors too heavily.

Sean O’Sullivan, the co-founder of Avengo, the parent company of carpooling service Carma, which connects drivers already traveling on specific routes, isn’t surprised by the problems Uber, Lyft and SideCar have faced. O’Sullivan accuses these companies of deliberating misleading consumers by failing to label the service accurately.

“These illegal services have been successful, because publications continue to call what they do ridesharing though it isn’t ridesharing. Even the CPUC, which should know better, refers to it as ‘ridesharing’ in parts of their documents,” O’Sullivan told PYMNTS.com. “Up until one year ago, when these taxi-like services came along and tried to hijack the use of the word ridesharing, it was known all over the world, by hundreds of thousands of people, as carpooling or vanpooling.”

The difference, according to O’Sullivan, is that the drivers for these companies work for a profit rather than simply to reduce their expenses.

What The CPUC’s Proposal Means For The Industry

The CPUC’s rule would enact a number of new regulations on the burgeoning industry. For example, transportation network companies would need to meet accessibility requirements, provide criminal background checks, driver training programs, zero-tolerance policies for alcohol and drug use and insurance policies and ensure its service does not discriminate by underserving certain neighborhoods.

The industry says it is already following the proposed rules.

“We take safety very seriously and already follow all of the requirements in our interim operating agreement with the CPUC,” Margaret Ryan, SideCar’s vice president of communications, told PYMNTS.com in an interview.

Ryan said SideCar recently made a number of usability fixes for visually impaired passengers, based on feedback from blind and low-vision app testers.

“We hear from our riders all the time that one of the reasons they love rideshare is that they can get a ride from Sidecar in parts of the city where cabs are not available and will continue our efforts to expand rideshare to underserved and disabled users,” she said.

Sidecar said it is looking for ways to help people with disabilities better use the service. Uber and Lyft did not respond to requests for comment.

The Future Of Ridesharing

The proposal, while promising for this burgeoning sector of the sharing economy, is still just a proposal until a CPUC vote. Yet ridesharing companies are lauding the proposal.

“We couldn’t be more pleased with the CPUC’s proposed decision but we recognize, while this is progress, we still have a way to go,” Ryan told PYMNTS.com. “Over the next 30 days we will continue to work with our community to impress upon the CPUC why ridesharing is so important to California.”

O’Sullivan had a different take regarding the legislation, saying the CPUC risked stifling true innovation in the carpooling marketplace by adopting the new rules.

“The biggest blow would be if CPUC accidentally makes carpooling, and carpooling innovation, illegal,” he said via email. “That would be a big disappointment to all 50 states and hundreds of cities that look to carpooling as a major and required means of transportation by the public.”

The CPUC said it needs to talk to the state legislature to see if their is need for a larger bill, but that a vote on the proposed rules could come as soon as September 5.