Feds find 7 big problems in Rahm’s proposed Uber law

Feds find 7 big problems in Rahm’s proposed Uber law In February, Chicago Mayor Rahm Emanuel proposed an ordinance for regulating transportation network providers, or TNPs, such as Uber and Lyft. But his proposal is loaded with anti-competitive restrictions that would harm consumers. Now regulators at the Federal Trade Commission have weighed in on Emanuel’s...

Feds find 7 big problems in Rahm’s proposed Uber law

In February, Chicago Mayor Rahm Emanuel proposed an ordinance for regulating transportation network providers, or TNPs, such as Uber and Lyft. But his proposal is loaded with anti-competitive restrictions that would harm consumers.

Now regulators at the Federal Trade Commission have weighed in on Emanuel’s proposal – and they agree.

In an analysis released this week, the FTC stated that the proposed law contains numerous provisions that, in its words, “may unnecessarily impede competition … without providing any apparent consumer protection benefits.”

Here’s a summary of the seven problems the FTC found.

1. The licensing fees are too high

Emanuel’s proposal would charge TNPs an annual fee of $25,000 per year, plus $25 for each affiliated driver. Taxi associations, on the other hand, pay only $500 per year, plus $15 for each affiliated driver.

The FTC points out that the high fee may put TNPs at a competitive disadvantage and, if replicated in other cities, could impose a “substantial barrier to entry and operation, even for more well-established and successful [companies].”

The FTC therefore recommends that the city reduce the fee to whatever is actually “necessary to cover the costs of administering a regulatory framework” and structure any fees in a way “that avoids unnecessarily inhibiting or deterring new entry or further expansion into the marketplace.”

2. The ban on time-and-distance pricing hurts competition and consumers

The proposed ordinance would prohibit TNP vehicles from charging customers based on a combination of time and distance – which is how they charge consumers now and how taxis have always charged customers.

The FTC says this is “likely to restrict one of the most important competitive tools” of TNPs and urges the city to allow flexible pricing – including “surge pricing” in times of peak demand – to maximize benefits to competition and consumers.

3. The insurance requirements are greater than those for other passenger vehicles

The proposed ordinance would require TNPs to have commercial liability insurance with coverage of at least $1 million per occurrence, as well as commercial automobile liability insurance with coverage of at least $1 million per occurrence.

Yet existing law requires much lower coverage amounts for other types of vehicles: $350,000 per occurrence for taxis; $100,000 for jitney car service vehicles; and $350,000 for other vehicles with up to 10 seats.

The higher coverage requirement for TNPs means they’ll likely pay more for insurance – and their customers could pay higher prices as a result. The FTC therefore recommends that, if the risks associated with TNP vehicles are similar to risks faced by other passenger vehicles, TNPs should not face a greater insurance requirement.

4. The ban on airport drop-offs and pickups would destroy competition for no good reason

The proposed ordinance would ban all pickups and drop-offs by TNPs at Chicago’s airports and at McCormick Place – eliminating all competition by TNPs at those locations to the benefit of traditional taxi companies. The FTC says that, in the absence of any evidence that pickups or drop-offs at those places would harm consumers, this provision should be removed.

5. The GPS tracking requirements are burdensome

The FTC criticizes the requirement that all TNPs share GPS tracking data for all of their vehicles with the city because doing so would impose “significant costs” and compromise confidential business information.

6. The ordinance would stifle innovation by restricting who can own or provide financing for vehicles

One provision of the proposed ordinance would prohibit a TNP from owning or providing financing for any vehicles in its fleet. As the FTC points out, there is no evidence that any companies are doing this, and there’s no good reason to unnecessarily ban potential new business arrangements.

7. The ban on advertising harms consumers and may violate the First Amendment

The proposed ordinance would prohibit advertising on and in transportation network vehicles – even though taxis are allowed to have ads.

The FTC points out that this would eliminate a potential source of revenue “and constrain the development of TNPs to the detriment of competition and consumers.” The FTC adds that, as a restriction on free speech, it may also violate the First Amendment.

The FTC is not known as a consistent friend of the free market – but even FTC bureaucrats understand that the market is serving consumers well with TNPs and that it would be harmful for government to get in the way.

Let’s hope that Emanuel, who is expected to unveil a revised proposal soon, gets the message.