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Summary:

Car services that connect passengers and drivers by means of cell phone app have proved controversial with regulators and the traditional cab industry. In California, they won a big step to legitimacy.

Lyft Zimride car-sharing real-time app

Ride-sharing services like Lyft and Uber, which directly connect passengers and personal drivers, got a boost of legitimacy this week when a California regulatory body voted to authorize the services.

In a 5-0 decision, the California Public Utilities Commission said the companies, which had been operating in a legal grey area, are now officially a new form of service called “transportation network companies.” The services are disrupting the traditional taxi industry by letting passengers hail private cars directly from their phones.

According to All Things D, the car companies will have to abide by some regulations, including conducting criminal background checks and securing $1 million per-incident insurance coverage.

The regulator’s ruling appeared to reflect an awareness of the rapid change in the transportation business:

“Finally, the Commission is aware that TNCs are a nascent industry. Innovation does not, however, alter the Commission’s obligation to protect public safety … The Commission is familiar with and confident in its ability to protect public safety in the face of rapid technological change.”

The legal status of the ride-sharing services remains unclear in much of the country, and there are lawsuits over Uber’s practice of keeping half the tips paid to its drivers as a commission fee.

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  1. Competition is good for consumers. If ride-sharing or taxi services provide poor service consumers have genuine alternatives. Regulation doesn’t guarantee good service.

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