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Putting brakes on ride-sharing apps

Michael Cabanatuan

Updated 11:08 p.m., Sunday, October 7, 2012

State regulators have issued cease-and-desist orders against two more firms that bill themselves as high-tech alternatives to the way taxi companies usually operate.

The latest orders were issued in August by the California Public Utilities Commission and assert that the companies - SideCar and Lyft - lack the required charter party carrier permits that make sure drivers are properly licensed, screened and insured to carry commercial passengers.

"Right now the concern is that if I were to be picked up by one of these cars and there is some kind of accident, that (driver's) insurance company may deny that claim," said Frank Lindh, the commission's general counsel. "And I would be stuck with those medical bills."

Grappling with entrepreneurs trying to leverage technology and create new businesses that operate outside existing practices, and sometimes laws, is no new issue for the Public Utilities Commission. It filed a similar order in 2010 against Uber, a San Francisco-based firm that is still operating unimpeded as it claims it already meets state requirements.

The three operators all employ technology that allows passengers to summon rides using mobile apps on their cell phones.

'New way of thinking'

Uber sends drivers in luxury vehicles to pick up passengers whose credit cards are automatically charged flat fees or fares calculated by GPS. Lyft and SideCar connect people needing rides around San Francisco with drivers who pick them up in private vehicles. Drivers are screened and insured by the companies, and collect "suggested" but voluntary donations for their rides.

"It's a whole new way of thinking about transportation," said John Zimmer, Lyft co-founder, the only operator who would comment. "It's a whole new way of thinking about community."

It's also unsafe, illegal and risky, said Lindh.

While the companies say that they screen drivers and provide sufficient insurance, some of the drivers don't have commercial licenses and there's no independent verification of the screenings or insurance, Lindh said. The commission contends the companies are violating a state law that says any nongovernment entity providing passenger transportation services must obtain a charter party carrier license. The permits, which cost $1,100, are issued after regulators verify that the company has properly licensed and screened operators and adequate insurance, said Terrie Prosper, a commission spokeswoman.

Impound, fines threatened

According to the cease-and-desist notices mailed to each company, the commission has the right to impound the companies' cars and impose fines of up to $5,000 a day, county jail sentences of up to three months, or both. Each day of violation is a separate misdemeanor offense, and Lindh said it's possible that if the companies don't comply soon, they could be fined for months of violations.

Uber has not been fined or shut down, Prosper said, although it's been two years since the notice was issued. Commission attorneys, she said, continue to investigate Uber's operations.

Taxi drivers and companies are also concerned about the alternative services, which they call "rogue cabs" and consider unregulated, untaxed and unfair competitors.

The San Francisco Municipal Transportation Agency, which oversees taxi operations in the city, is also investigating Lyft, SideCar and Uber.

In 2010, the MTA also issued a cease-and-desist order alleging the company, then called Uber Cab, was an illegal taxi operation. Uber dropped the word "cab" from its name and continued to pick up passengers.

Uber and SideCar officials did not return phone calls or e-mail seeking comment. But Zimmer acknowledged receiving the latest cease-and-desist notice and said he's been talking to the officials at the regulatory agency.

"I think of it as an opportunity to open up conversation with the PUC and explain what the Lyft community is all about," he said. "Our conversations have been receptive and productive."

Zimmer said he sees the run-in as a clash between an innovative way of providing transportation using evolving technology and a regulatory bureaucracy enforcing laws that haven't kept pace.

Lindh disputed that assessment, saying, "In a sense, there's nothing new with what they're doing, just the technology they're using."

Zimmer describes Lyft, whose cars sport bright pink mustaches on their grilles, as an evolution of the old "ride board" - a 1970s and 1980s fixture on college campuses where people seeking rides would post them on a bulletin board. In the 1990s those ride boards went online, including on Craigslist.

"This is the evolution of ride sharing," he said. "It's a platform for people who are able to offer rides and people who are willing to take rides from nonprofessionals to connect."

But there's a difference between the ride boards of yore and ride-sharing services like Lyft and SideCar, Lindh said.

"This is different in that it's commercial," he said. "This is beyond the casual carpool. People are trying to make a living."

Michael Cabanatuan is a San Francisco Chronicle staff writer. Twitter: @ctuan. E-mail: mcabanatuan@sfchronicle.com