To Act or Not To Act: A Regulator’s Question
If the New York City Taxi and Limousine Commission (TLC) had a real-talk FAQ page on our website, top of the list would be, “So what are you doing about Uberrrrr?!?” The entry of Uber, Lyft, Via, Juno, and Gett into the NYC market was different from many other cities. There was no creation of a “TNC” class of service, as other cities have handled app ride companies. No legislation was passed. Instead, these companies found a home in the existing TLC-regulated black car sector, an industry that began in New York City in the early 1980s.
To operate as part of NYC’s black car industry, the app companies made adjustments to their business models. They opened TLC-licensed black car companies, and only work with TLC-licensed drivers and vehicles. Their fares are subject to city and state sales taxes and they must pay into a workers’ compensation fund for drivers. The black car sector accommodates the apps’ business models relatively well because it allows companies freedom in signing up many drivers, setting the fare, and engaging in dynamic pricing (you may know this better as “surge pricing”). The app companies have also found the black car industry to be a space for shared rides (as long as the sharers consented to the sharing — this is NYC, after all).
That’s not to say nothing has changed since app companies joined New York City’s for-hire transportation regulatory landscape. The black car sector grew from 8,000 cars in 2012 to 73,000 cars today. It also transitioned from a high-end business-to-business industry (think banks and law firms providing chauffeured rides home for employees after long nights at the office) to a segment dominated by relatively affordable direct-to-consumer service.
Over the past few years, the TLC has received countless calls for action in response to industry changes stemming, in large part, from apps. Sometimes the agency has acted on these calls, and sometimes it has not. A great deal of thought and meticulous research goes into considering different policy options, and there’s more rhyme and reason to this than might appear. But the primary decision-making principle is relatively simple. The TLC acts when what we care about as a society, such as safety and consumer protection, will not naturally be taken care of in the market. The TLC does not act when the benefits of competitive market are likely to serve the public well.
The chart below pulls back the curtain on how this works in practice.
Making customers wait five minutes before they can request a car via app?
One call to action from the industry stemmed from differences between a street hail and a pre-arranged trip. Black cars like Uber and Lyft are part of a broader category of vehicle called for-hire vehicles (FHVs) in New York City. A key distinction between taxis and FHVs like black cars is that taxis can be hailed on the street, but FHV trips must always be arranged by contacting the company before the trip. A person walking down the street can see an available taxi, for instance, and hail it. But if she spots a car affiliated to an Uber base without a passenger, she cannot be picked up on the street. To use a black car, the passenger needs to contact the company first. The rider may do so through an app or by calling the company, depending on the service.
Some members of the taxi industry proposed that customer be required to wait five minutes or longer periods of time before their request for an FHV is sent to the company, i.e. Uber or Lyft. The goal appeared to be that customers would hop in a cab during that five minutes, and the trip would not go to a taxi competitor. This proposal did not promote public safety, address a negative externality, or protect consumers (in fact, it would have made them wait longer for service). It represented an attempt to maintain market share. The TLC didn’t act.
What to do about dynamic or “surge” pricing?
The next one was harder. The TLC was called upon to limit or ban dynamic or “surge pricing” back when passengers were often presented with multipliers (e.g., “due to high volume, your ride will cost 3.2x the normal price”) before requesting a ride, but didn’t receive fare quotes. Some consumers felt they were being ripped off by high prices, or at the very least were experiencing sticker shock when the price at the end of the ride was more than they expected.
On the other hand, dynamic pricing could in theory help consumers by enticing more vehicles to provide service at peak demand times. Some New Yorkers don’t mind, for instance, paying a bundle for dinner at Gramercy Tavern or “Hamilton” tickets. Was there a compelling reason to stop these patrons of the service economy when they wanted to drop $200 on their rides home? We opted instead to require companies to provide each passenger with a dollars and cents estimate of what the ride would cost them before the trip started, preventing sticker shock at the end of a surged trip. Since then, app companies such as Uber and Juno have taken this a step further and now voluntarily provide passengers with binding fare quotes up front. Many passengers seem to like the certainty of upfront pricing, though there could be potential downsides for passengers’ wallets if up front pricing actually enables the company to subtly surge more frequently. But the transparency of a fare estimate is important to protect consumers in NYC and avoid the sticker shock that can come with dynamic pricing.
How can we ensure accountability when drivers regularly work for multiple companies?
One significant change in the industries that the TLC regulates is that apps made it easier for drivers to work for more than one company. Although most TLC-licensed drivers were independent contractors before the apps came to town, the practice (not the rule) was that each driver worked primarily for one company.
Apps rocked the boat by actively recruiting drivers to work for them on the side. Some traditional car service companies, wanting to ensure driver availability for their own customers, asked the TLC to require written agreements between companies to send trips to each other’s drivers. (This would have amounted to codifying a common practice in which the management of one car service, on a day when it did not have enough drivers to meet demand, would agree with management of another company to send its cars to fulfill the first company’s requests.) Other companies were fine leaving things entirely up to the driver — either because they thought it kept drivers from leaving their companies altogether, helped smaller app companies access more drivers, or supported legal assertions that the drivers were independent contractors. Drivers pretty uniformly wanted to be able to drive for as many companies as they wanted.
The TLC’s main concern from a safety and consumer protection point of view was accountability. When there is a problem with a trip, such as a report of passenger harassment or reckless driving, it is important for TLC to be able to know what company sent the driver. In the end, we decided to continue allowing drivers to work for as many companies as they wanted, but we required all companies to send us records of the trips they dispatch so we know where to go to establish accountability if something goes wrong.
Smart regulation comes from understanding the strengths and the weaknesses of markets. Where the TLC can, we err on the side of promoting competition. Sometimes competition can reduce how much regulation needs to handle. The TLC focuses our work on safety, consumer protection, and preventing discrimination, which are important social “goods” that market players generally won’t provide adequately on their own. For example, earlier this year TLC passed rules to combat driver fatigue, a safety issue some companies weren’t addressing adequately on their own and actually couldn’t fully address because no single company — only TLC — knows how much each driver works since many drivers work for multiple companies. In September, the TLC will hold a hearing on proposed wheelchair-accessibility rules in the FHV industry. Absent a meaningful and effective regulation, people who use wheelchairs do not have access to adequate accessible FHV service.
TLC regulation looks at areas like insurance, liability and accountability, which come into play every day in a city where the for-hire industry transports more people than the Washington Metro or the Chicago “L.” Each and every New Yorker, focusing on living his or her life, can’t and really shouldn’t have to personally vet each company to ensure it meets basic safety and consumer standards. The TLC’s job is to ensure these standards are there for the public when they need them.
So when you’re in a food coma from that duck liver mousse (or a couple of dollar slices), exhausted from dancing all night (or more realistically, a long day of work), and really, really just want a quick ride home (that’s universal), know that a good deal of brain-twisting and reflection went on at the TLC to help that experience go well.
Dawn Miller is Chief of Staff at the New York City Taxi and Limousine Commission. This piece is an adaptation of NYC TLC Commissioner Meera Joshi’s talk and presentation to the NYC chapter of the Women’s Transportation Seminar
