California’s burgeoning efforts to regulate ride-for-hire companies like Uber and Lyft have reached a fork in the road after the Department of Motor Vehicles issued an advisory requiring commercial registration, a move that threatens to upend the companies’ business model.
The advisory provoked an outcry both from companies who see their basic structure imperiled and from California lawmakers who, having just moved to regulate the rising industry, protested that the DMV was applying outdated rules to a new kind of business.
Conceived as an alternative to taxicabs, firms like Uber, Lyft and Sidecar allow people to use their personal vehicles to transport customers who have hailed a ride using a smartphone app. They tout their flexibility and potential for nonprofessional drivers to make some extra cash.
But the DMV said earlier this month that any time a car is used to transport people in exchange for compensation, that car must have commercial plates – an order that contradicts previous state regulations, according to the industry.
“Even occasional use of a vehicle in this manner requires it to be registered commercially,” the advisory states. A DMV spokesman told The Sacramento Bee that the memo did not enact a new policy but merely clarified existing law “which has been on the books in California since 1935.”
A spokesman for the California Highway Patrol concurred. “If they’re going to drive their vehicle and charge for it, then it has to be registered as a commercial vehicle,” said Officer Mike Harris.
Uber and Lyft argue that both the Legislature and the California Public Utilities Commission have already recognized their so-called “transportation network company” model as distinct from other commercial transportation businesses. Requiring commercial registration, they say, collapses that distinction.
“Requiring Lyft drivers, including those who drive just a few hours a week, to get commercial plates would essentially treat peer-to-peer transportation the same as a taxi, undermining the thoughtful work done by the PUC to craft new rules for ridesharing in California,” Lyft spokeswoman Chelsea Wilson said in an email.
An organization representing the taxicab industry hailed the DMV’s directive as the correct move.
“We’re in agreement with the DMV,” said Jennifer Tannehill, a lobbyist for the Taxicab Paratransit Association of California. “We think everybody should abide by the laws on the books, and that’s now what it states: If you transport people for hire, you’re a commercial vehicle.”
The dispute reflects a broader conundrum: As innovative new business models mature into hugely profitable enterprises, policymakers have to decide what level of regulation is appropriate – and whether to treat the novel businesses differently from their predecessors. A related fight over companies like Airbnb, which permit users to rent out their apartments for short-term stays, looks likely to descend on the state Capitol this year.
Last year, lawmakers passed a bill treating transportation network companies a little more like taxicabs by requiring them to carry more extensive insurance. Uber and Lyft vociferously opposed the measure, Assembly Bill 2293, but ultimately accepted the compromise measure that Gov. Jerry Brown signed into law. It takes effect July 1.
The DMV’s order this month ignored the fact that the new law creates a legal framework for commercial use of personal cars, an Uber spokesman said.
“Earlier this year, Governor Brown and the California Legislature agreed with the CPUC when they passed a TNC bill that affirms that TNC drivers may use personal vehicles,” Uber spokeswoman Eva Behrend said in an email.
Assemblywoman Susan Bonilla, D-Concord, who authored last year’s bill, criticized the DMV’s approach as heavy-handed.
“I believe that what the DMV is engaged in really is over-regulation, and it potentially can hurt what really is an emerging business model,” Bonilla said. “The point of (Assembly Bill) 2293 is showing we can be adaptable and flexible, that we want to welcome a new marketplace in California and find a new way to do it.”
Republicans, who also backed last year’s year bill, shared that perspective. Members of the Assembly Republican caucus sent a letter to the DMV lambasting the memo, arguing that, “Eighty years ago this interpretation was likely sound. In 2015, however, this borders on the nonsensical.”
“We are baffled by this decision because it’s going to create unnecessary logistical challenges for California’s fastest growing industries,” Assemblywoman Ling-Ling Chang, R-Diamond Bar, said in an interview. “I believe this can be solved. It should be solved without needing to introduce legislation but if it’s not, this is the route we will pursue.”
Call Jeremy B. White, Bee Capitol Bureau, (916) 326-5543.