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Andrew J. Hawkins, Crain's New York Business

Lyft slapped with 'cease-and-desist' notice in NYC

July 11, 2014 - 9:24am


Lyft, the pink-mustachioed car-sharing startup that plans to begin serving New York City Friday, has been issued a “cease-and-desist” letter by the state Department of Financial Services in which Superintendent Benjamin Lawsky accused the San Francisco-based firm of “acting in bad faith” and ordered it to stop all promotional activities in the state.

“Lyft's ongoing law violations will not be tolerated and must halt,” Mr. Lawsky wrote in the letter, dated July 8 and addressed to Lyft CEO Logan Green.

Mr. Lawsky accuses Lyft of lying in a June 5 meeting with state officials. The company had been operating in Buffalo and Rochester since late April, and DFS sought the meeting to clarify questions surrounding the company's insurance policy. During the meeting, Mr. Lawsky asked if the start-up had plans to launch in New York City. Lyft's representatives said no, according to the letter.

Mr. Lawsky takes particular exception with Lyft's $1 million-per-ride insurance policy. He acknowledges that the policy covering the firm's drivers offer excess coverage beyond drivers' personal car insurance, but claims that Lyft is “foisting risk that properly belongs in the commercial insurance market onto the private market, likely making private automobile insurance more expensive for all New Yorkers.”

The letter comes at a particularly precarious time for Lyft, which announced this week its intentions to start operating in Brooklyn and Queens. Neither the city nor state has given the company the go-ahead, which hasn't dampened Lyft's enthusiasm for establishing a foothold in the lucrative New York market. The company plans on holding a launch party Friday in trendy Bushwick with free booze, local-fruit popsicles and a performance by rapper Q-Tip.

Impounds threatened

The city’s Taxi and Limousine Commission issued a notice Wednesday threatening to impound Lyft drivers’ cars and impose fines of $2,000.

“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,” the agency notice said.

Some commentators have suggested that Lyft is hoping to use the free publicity from its clash with the city and state governments, and any possible lawsuits that result, to gain followers and users for its car-share service and increase its valuation. In March, the Wall Street Journal reported that the company was worth $700 million, far short of e-hail appUber’s eye-popping $17 billion valuation but enough to spur venture capitalists to pump $250 million into Lyft in April.

But Lyft claims its services are needed in transit-starved outer-borough neighborhoods.

“Lyft will offer a new and much-needed transportation option for New Yorkers in the areas of the city where existing options are lacking,” said Erin Simpson, the company’s director of communications, in a statement. “This improvement in transportation will provide important opportunities that New Yorkers want and deserve. We’ll continue to work with all stakeholders to create a path forward. Our focus remains on the community, who will be the ultimate beneficiaries.

“Where we differ with the TLC is that we do not believe its licensing and base station rules apply to the Lyft ridesharing model,” Ms. Simpson continued. “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.”

In regard’s to Mr. Lawsky’s cease-and-desist letter, Ms. Simpson said, “We’re having productive conversations with the DFS and believe we can resolve every issue outlined in the letter.”

On Thursday, the company released its nine-point “safety commitment” statement, outlining policies for background checks and insurance for drivers.

Andrew J. Hawkins writes for Crain’s New York Business, a sister publication of Business Insurance.

 



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