Schneiderman Issues Cease and Desist 24 Hours Before Lyft's NYC Launch

The less expensive Uber alternative is the New York attorney general's latest startup victim.

UPDATE: Lyft has sent comment, calling the claims of the AG and DFS against Lyft a “deliberate misstatement.” The judge in the case is adjourned until Monday, and Lyft is putting off their expansion of service until then.

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Lyft, the e-hailing service prompting ride sharing, was set to launch this evening despite major pressure from the Taxi and Limousine Commission and Department of Financial Services. However, their future in the city is now even more uncertain. Lyft is the least expensive of the e-hailing taxi services, even undercutting UberX’s recently lowered prices. The service is known for the giant pink mustaches they put on their drivers cars and launched in San Francisco two years ago.

This evening at seven, Lyft scheduled to launch in Brooklyn and Queens, boasting their plans on the company blog. They are offering two weeks of free rides and thus far have recruited move than five hundred drivers. However, regulatory authorities are doing alDisruptorsl they can to prevent this, and now, the launch is unconfirmed. The Taxi and Limousine Commission determined that Lyft did not meet their safety requirements and licensing criteria.

TLC Chair Meera Joshi told Betabeat in an email statement, “Lyft has not complied with TLC’s safety requirements and other licensing criteria to verify the integrity and qualifications of the drivers or vehicles used in their service, and Lyft does not hold a license to dispatch cars to pick up passengers.  In keeping with the TLC’s priority of protecting public safety and consumer rights, the agency will be conducting enforcement operations to ensure compliance with the City’s rules and laws.”

Lyft, however, is not technically a car service. Similar to Uber (UBER), they are a technology application that simply connects drivers and those who needs rides. As per their terms and conditions, “Lyft does not provide transportation services, and Lyft is not a transportation carrier.” In an email interview with Betabeat, Lyft spokesperson Paige Thelen elaborated, “Where we differ with the TLC is that we do not believe its licensing and base station rules apply to the Lyft ridesharing model. It’s important to clarify that our differences of opinion are not about safety standards, and that’s because we put safety first. In new markets when we begin conversation with local regulators, we always find a way to ensure that communities have Lyft. We’re certainly different from the status quo, but that is our strength.”

While Lyft makes a compelling argument, the TLC has already made it clear if Lyft launches, the repercussions will be swift and severe. Ms. Joshi explained in her statement, “Unsuspecting drivers who sign-up with Lyft are at risk of losing their vehicles to TLC enforcement action, as well as being subject to fines of up to $2,000 upon conviction for unlicensed activity.” Lyft is prepared to deal with this. “We will stand behind our drivers throughout this process and cover the costs of any citations and/or necessary legal assistance,” said Ms. Thelen.

Initially, some reports claimed Lyft drivers could even be arrested for operating in the city, however, this claim is untrue. TLC spokesperson Allan Fromberg explained, “I’m not sure where the arrest speculation got started, but we’re talking about vehicle seizures and hefty summonses….not arrests!” As for those who use Lyft, they are not subject to any legal action, “Our regulatory authority does not extend to passengers, so the only risk to the customer is the one posed by their taking a ride with an un-vetted, illegal operator,” said Mr. Fromberg.

It seems the major point of contention is safety. The TLC does not approve of Lyft’s vetting of drivers, as well as their insurance policy. Lyft has made their driver selection process public, which includes background checks and vehicle inspections similar to those performed by the TLC and livery vehicle operators. The battle went beyond the TLC yesterday evening, when the Department of Financial Services sent Lyft a cease-and-desist letter.

Attorney General Eric Schneiderman and Department of Financial Services superintendent Ben Lawsky are asking the New York state Supreme Court for a temporary restraining order against Lyft. In their filing, Mr. Schneiderman and Mr. Lawsky claim Lyft is operating in “open defiance of state and local licensing and insurance laws designed to protect the lives and well-being of New Yorkers.” Their complaint continues, “Lyft is currently violating various state and local laws, including most notably provisions of the Insurance and Vehicle and Traffic Laws and local regulations governing the operating of vehicles for hire.” Mr. Schneiderman did not return request for further comment.

In reaction to the letter, Lyft purchased additional insurance, a policy ranked “best-in-class.” Ms. Thelen told Betabeat, “We are having productive conversations with the DFS and believe we can resolve every issue outlined in their cease and desist letter. As part of that process, we have posted our full insurance policy for the first time, and have changed from excess to primary coverage.” Another Lyft spokesperson, Ms. Katie Dally, told Betabeat, “We are in a legal process with local regulators today and will proceed accordingly. We always seek to work collaboratively with leaders in the interests of public safety and the community, as we’ve done successfully in cities and states across the country, and hope to find a path forward for ridesharing in New York.”

As this move from the Department of Financial Services comes just hours before Lyft aims to launch, they are working quickly to remedy the situation. However, based on Mr. Schneiderman’s previously  harsh track record with start ups such as Uber, it is unlikely a resolution will be reached by seven this evening.

As for those who operate yellow cabs, they are standing in support of the regulatory bodies. Ethan Gerber, director of the Greater New York Taxi Association, told Betabeat, “The TLC is acting responsibly: New Yorkers have the most regulated, most reliable service in the world – Lyft wants to set their own rules and be accountable to no one.  Wanting to operate a business without regulation, oversight and accountability is not new. The new part is packaging it as ‘innovation’.” The New York State Federation of Taxi Drivers is also planning a protest of Lyft for this afternoon.

Since first publishing this story, we’ve received comment from Lyft regarding their status with the court:

“There was no TRO or injunction granted today. Instead, the judge adjourned to Monday and we agreed to hold our launch and maintain status quo. We are obtaining the court transcript, and we will obtain statements by those in court to show this is a deliberate misstatement by the AG and DFS. There would be no need for a hearing on Monday if a TRO or injunction was granted. As further proof that court was adjourned, the AG’s insurance claims were never presented and Lyft had no opportunity to respond.

“We agreed in New York State Supreme Court to put off the launch of Lyft’s peer-to-peer model in New York City and we will not proceed with this model unless it complies with New York City Taxi and Limousine regulations. We will meet with the TLC beginning Monday to work on a new version of Lyft that is fully-licensed by the TLC, and we will launch immediately upon the TLC’s approval. This is a positive step forward and a good demonstration of compromise in balancing innovation with government regulation, and we appreciate the continued efforts of New York City government to find common ground for the betterment of New York.”

Schneiderman Issues Cease and Desist 24 Hours Before Lyft's NYC Launch