New York City Passes New Regulations to Allow Mobile Taxi Apps

On Tuesday night I flew into New York and took a cab downtown. The cab’s meter wasn’t working, or so the driver said, and we agreed on a fixed price to my hotel. I know what a ride costs and wasn’t going to overpay. And I negotiated a discount for cash.

But the cab driver — who was going to get paid the same amount regardless of the route — decided the best thing was to take surface streets despite no traffic at almost 10pm, not wanting to pay tolls. He also wanted to finish the trip as quickly as possible and pushed the envelope on every red light we approached. The cab couldn’t have had much of a suspension system, I was so thrown around that by the time I made my hotel I was nauseous.

Cabs can be tough to get in New York at certain times and in some places, there are roughly the same number of taxis there as there were in the 1930s. The government won’t allow more; those would compete against incumbent operators and you have virtual regulatory capture by the industry such that the Taxi and Limoousine commission’s main purpose seems to be protecting the incomes of the companies which own taxi medallions.

Over the summer I wrote about “Why Taxis Suck and What You Can Do About It”

Remember that with fixed prices, cabs can’t charge for better quality. In New York it’s been illegal to pre-arrange a taxi cab, so you get what you get, whatever car pulls up, no matter what shape it’s in (and the condition then gets regulated).

In many places public transit is a much better option, but with luggage that can be daunting, with connections and in a new city it can be as well. Some places the waits are interminable, like DC’s metro with changes of trains and during off hours or on a weekend.

Car services can provide better quality, usually at a much higher price, but have historically been quite inconvenient due to the need to pre-arrange — you don’t always know when you’ll turn up or where you’ll need the pickup.

Enter Uber: a mobile app that helps passengers and car services find each other. They’re cheaper than the usual pre-arrangement, because they use the downtime that cars would otherwise be sitting and not earning anything, letting those cars find passengers who want a ride on the spot.

On average much of the time a car service called via Uber will cost 50% more than hailing a cab, but it shows up when you want it and avoids the vagaries of can you get a cab? Which late in the evening and in certain parts of town in many cities can be probabalistic at best. It’s a couple of taps on your phone, car shows up, you’re charged based on time and distance and there’s no transaction at the end — they just charge your credit card on file.

If you’re going to sign up for Uber, use my referral link and we each get $10 with your first ride. If you already use Uber, feel free to post your own referral link in the comments and a reader may choose to use yours instead.

When Uber tried to bring their mobile app innovations to the New York taxi market, they were chased off by regulators who apparently have their own trade association that was banding together to fight innovation from encroaching on their turf.

In New York pre-arrangement of a cab is illegal, which protects the black car market (the government has declared that only limo services can be pre-arranged, they lobby for the restriction as it means more business for them).

And the city has a monopoly contract for the processing of all credit cards, every cab in the city must use the same system that can then be awarded to cronies of the Taxi and Limousine Commission. The regulators don’t want to give up their ability to award monopoly payment processing for all taxi trips in Manhattan.

Uber’s app ran afoul of both of these, they charged through their own system and they necessarily pre-arranged taxi trips.

Regulators have also made the argument that they can’t vouch for the safety of Uber’s ‘unregulated car service’ but that makes no sense since Uber doesn’t operate their own vehicles, they simply work with already licensed and regulated vehicles to help them more efficiently find passengers (a big boost to their incomes).

The uproar after chasing out Uber’s attempt to allow pre-arrangement of taxis via app was so great that New York’s Taxi and Limousine Commission has relented, passing new regulations that would both allow for taxi apps and preserve its power.

They’ve passed a temporary one-year measure, with several restrictions:

  • Any app must call a cab with a single tap (my current Uber app takes two taps — one to identify my location and a second to confirm that I want to call a cab to that location).

  • They can’t allow drivers to accept requests from more than half a mile a way if they’re in midtown or more than 1.5 miles away in other boroughs or upper Manhattan.

  • Apps have to process payments through the credit card monopoly awarded by the Commission, and not through their own system.

Customers also aren’t allowed to pay more for pre-arrangement or to effectively get priority over passengers hailing a cab who wouldn’t be paying more.

There was vicious opposition to the new rules, even with their restrictions (and it seems crazy that the Commission would be regulating the design of the app by requiring one tap rather than two!). That came from current black car operators:

But the most bitter opposition on Thursday was specific to New York, where the city’s prohibition on the use of radios and phone dispatch centers by yellow cabs in the 1980s led to the growth of an extensive livery and black car industry. Those companies have aggressively lobbied the TLC not to permit apps that they feel would break down the existing ban on “prearrangement” of rides between yellow cab drivers and customers, saying that to do so could severely threaten their business.

That argument held sway among some TLC commissioners, who said they feared the impact on jobs of allowing the apps to be used.

Technology breaks up and threatens existing orders, improves service to consumers and efficiency of business, it also disrupts existing business models. Regulators often protect those entrenched interests, but in the face of public opposition it’s difficult to do so. Here New York’s taxi regulators have tried to thread the needle through a middle approach — allow technology, but carve out a space for continued control over the market, which limited protections for at least some though not all of their cronies — to borrow a phrase, standing athwart history and pleading for it to stop or at least slow down…

(HT: Samir and also Colleen)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Hey, while I’m glad about these changes too, I really think you’ve gone a bit overboard in your coverage of the “regulators who want to destroy this brilliant startup.” Uber simply cannot plunk itself down in New York City and take over our taxi industry. While in some ways it is probably a bit overregulated, there are pretty decent reasons for this. (Ask any black man who tried to get a cab prior to, oh, 2005; ask anyone who tried to get to Manhattan from an airport prior to flat pricing. Ask anyone who’s ever lived in Brooklyn!)

    In the end, I don’t see what the complaint is. The City and the regulatory board responded to requests change. Great. That’s what people wanted. So, we got it.

    But it’s not a BUSINESS MODEL that was being disrupted. Taxis in NYC are a business that are extremely close to being a public utility. And they are regulated for a vast array of reasons.

    And in addition to the customers of taxis, we also don’t want our drivers toyed with. In recent years they’ve organized, particularly because they were being bled dry by their shops. This organization effort has had a good outcome for all of us.

    For an alternate, if equally extreme, view on Uber and its tactics, there’s this:

    http://pandodaily.com/2012/10/24/travis-shrugged/

  2. @Choire – taxis were pretty bad about redlining, refusing to pick up minorities and in minority neighborhoods, Uber solves for that so I don’t see how it’s an argument against Uber. Taxis have been MADE INTO a public utility while funneling big profits to the companies that can afford the nearly $1 million for a taxi medallion (and keeping drivers from making this money). There’s no fundamental reason why taxis need be a public utility, and in many other jurisdictions they aren’t treated as such.

  3. You get what you get when you agree on a fixed fare with a broken meter taxi and refuse to pay tolls on top of the fixed fare.

  4. I have had good experiences with Uber, I take them over cabs whenever I can. Their whole driver feedback thing seems to actually work as opposed to taxi drivers.

  5. The author states “In New York pre-arrangement of a cab is illegal”. This is true only of medallion-bearing yellow cabs. As the author mentions, car services, sometimes called limousine services, can be prearranged and in fact must be so.

    Limousine services are prohibited from picking up unscheduled passengers and yellow cabs are prohibited from prearranging rides. By defining these two separate services, the Taxi and Limousine Commission has allowed for prearranged rides, as well as hailing a medallion cab for an on the spot ride.

    Don’t let the word “limousine” scare you off. Limousine services include town cars and can be had for prices comparable to, and sometimes better than yellow cabs, despite the author’s assertion that car services are “usually at a much higher price”.

    Aside from price, the author states that car services are problematic because they “have historically been quite inconvenient due to the need to pre-arrange”. Well, if pre-arranging a ride is inconvenient, why are you using Uber to pre-arrange a ride? This sentence alone causes the article’s argument to self-destruct.

    I dislike the NYC TLC’s credit card monopoly for medallion cabs too, but that’s a separate issue. There are already existing apps that will allow you to arrange and pay for a ride with a car/limousine service in NYC. The credit card monopoly applies only to medallion cabs.

    Uber’s arguments don’t make sense. Medallion cabs are not providing the services that Uber wants to facilitate. Limousine services are providing that service, but already have access to and in many cases have already implemented credit card payments as well as internet and app based booking. Since there’s competition in providing booking and payment services to limousine companies, Uber wants to force medallion cabs to start offering prearranged rides so they can be first to this new market segment with a solution.

    Choire makes good points, and the link provided in his/her comment makes for a good read, providing a well-reasoned examination of the issue.

    In general, there seems to be a clear but either misguided or Machiavellian leftist bent to this article. The author uses leftist talking points (freedom, choice, progress) to support a right-wing agenda (deregulation regardless of the consequences) and therefore either doesn’t understand the issues involved or is engaging in rhetorical sleight of hand to support Uber. This may just be born of a personal like for the service, I’m not saying the author stands to gain anything from Uber’s success, I have no way of knowing whether he does or not.

  6. Uber is awesome. They also accept dogs (just ask your drive to be sure). I’ve had great experiences with them.

    Would love for someone to use my referral code!

    uber.com/invite/4wvci

  7. Machiavellian?!?! I think the “prince” of points blogs has a new nickname!

    “With enough airline and hotel points and iphone apps I will rule the world!” Muahhhhhhhhhh!!!!!

  8. My understanding is that the “one-click” requirement is not for users/passengers requesting a cab, but rather for drivers to be able to accept a request. The argument for this would presumably be for safety reasons (as I believe the current cab regulations prohibit them from texting or tapping on phones while driving).

  9. Just to be clear, I like a lot of what I read here and I have a lot of respect for the author, but as a born, raised and lifelong New Yorker, I have been following this issue and disagree with his interpretation of the scenario.

    My point is that Uber is not pursuing progress and being hindered by cronyism in the TLC as the author suggests (not that it doesn’t exist – the credit card processing monopoly is real). Uber is attempting to encourage deregulation in the name of profit.

    As much respect as I have, I still can’t reconcile how he can say that prearranging a ride is inconvenient in an article that supports a service that prearranges rides.

  10. Glad to hear this has pushed through! Absolutely love Uber. Heard about them here on BoardingArea and have given up on cabs since. Amazingly enough they actually wind up being cheaper for me to go LAX than taking a cab!

    Thanks in advance for any referrals!
    uber.com/invite/cxab7

  11. ” While in some ways it is probably a bit overregulated, there are pretty decent reasons for this. (Ask any black man who tried to get a cab prior to, oh, 2005; ask anyone who tried to get to Manhattan from an airport prior to flat pricing. Ask anyone who’s ever lived in Brooklyn!)”

    The biggest overregulation in the taxi market is the limitation in the number of medallions. If you sharply limit the number of official yellow cabs, then of course the first people they’ll avoid are all the marginal ones, from black men to people in Brooklyn.

    Dollar vans exist because of the taxi overregulation. At least these things, like Uber, try to get someone a ride. Banning dollar vans or Uber because they’re not perfect doesn’t help anything if you don’t increase the supply of medallions, which isn’t happening.

  12. Years ago when I was the new kid on the traffic committee of a small Canadian city, I was handed the job of reviewing taxi policy. I suggested that taxi’s were like any other business and the city should stop controlling the number of taxi licences and just give them to anyone who could meet safety and other necessary standards as if they were milk stores. The mayor levitated out of his chair in horror and quashed my report. He explained that city hall would be immediately surrounded by throngs of irate cabbies and he would be pilloried in the press as threatening the livelihood of decent working men. I thought I was trying to free them from a life of serfdom to the oligarchs that owned all the licences.

    The reason for the present system was the taxi wars of the nineteen thirties and forties when cabbies would literally shoot and bomb their competition. Exclusive licenses were handed out to head off gang warfare. Now the regulators work for the industry and don’t give a damn about the public.

    We witter on about getting people out of their cars but the regulators refuse to allow any more cabs on our streets. The single greenest thing a city could do would be to open up taxi service to competition. It’s time to move on.

  13. The suggestion that the regulators work for the City is silly and uninformed. The Mayor recently tried to establish a program for street hail cabs in the outer boroughs. Guess who challenged that in court and snuffed it? The yellow cab industry for whom supposedly the regulators work. Why? Because the yellow cab medallion owners allege that the new outer borough medallions would dilute the value of their existing medallions – so much for cronyism between the regulator and the industry.

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