FTC backs driver apps in Chicago

The Federal Trade Commission (FTC) is warning Chicago lawmakers against a bill that would put limitations on software-based car services like Uber and Lyft.

While the bill currently under consideration could help protect consumers, “certain provisions … may unnecessarily impede competition in these services without providing any apparent consumer protection benefits,” the agency said in staff comments.

{mosads}In the comments, staff from the FTC’s Office of Policy Planning and Bureaus of Competition and Economics took aim at multiple provisions in the bill that would limit the way car service app companies can do business in Chicago, including a $25,000 licensing fee.

The comments compared the fee for apps — a $25,000 licensing fee, plus $25 for each driver — to the lower fees for traditional taxi companies. Cab companies pay a $500 licensing fee, plus $15 for each driver.

The agency recommended “that the Chicago City Council carefully consider the justification for and effect of these fees” and “that such fees should be no greater than necessary to cover [administrative] costs.”

The agency also took issue with a provision in the bill that would keep a company from calculating fares based on time traveled and trip duration, making fares instead based on demand. Currently, Uber uses “surge pricing” to raise fares when demand for drivers is high.

“The ordinance should clearly allow for greater flexibility and experimentation in structuring fees in order to facilitate innovative forms of pricing that may benefit consumers,” the comments said.

“To the extent that evidence of such harm is received, any restriction designed to address that harm should be narrowly crafted to minimize its anticompetitive impact.”

The comments further criticized the bill for its data retention requirements, costly insurance requirements, a prohibition on vehicle advertising and a provision that would block the app company from financially supporting the vehicles that use the service.

The agency recognized the novel policy concerns that come from new app-enabled car services while praising the “innovative” app companies.

App companies “that facilitate using personal automobiles to provide transportation services to the public may provide consumers with expanded transportation options, at potentially lower prices, thereby better satisfying consumer demand, and potentially increasing competition,” the comments said.

As they gain popularity and attempt to expand into new cities, car service app companies like Uber have encountered backlash from local lawmakers and taxi groups.

Last year, the FTC threw its weight behind Uber when the city lawmakers in Denver, Colo., were considering legal changes that would make it more difficult for Uber to operate.