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Innovation is Speeding Past Regulation

The location of the "Autobot Optimus Prime" truck from the movie "Transformers: Age of Extinction" is displayed on the Uber App in West Hollywood, California June 21, 2014. Paramount Pictures and Western Star Trucks partnered with Uber, an app that connects drivers to riders, for an "Uber Transformers" ride experience ahead of the release of "Transformers: Age of Extinction" in the U.S. on June 27.

As app-based car services like Uber and Lyft begin to flourish, there are still questions over whether these companies are meeting all of the regulations set by the Departments of Motor Vehicles (DMV) throughout the country. In some states, innovation and regulation have already clashed heads.

Around the world, taxi drivers and other authorized vehicles have filed complaints with car service regulators. They argue that services like Uber and Lyft are out of compliance with current rules. Rules vary widely but app-based car services had reached agreements to operate under different regulations than taxis in many states.

State DMVs Step Up Enforcement Against Ridesharing

When Uber and Lyft were issued cease and desist letters by the Virginia DMV this past month, both companies refused to stop offering their services. Uber, a startup valued at $18.2 billion, offered this explanation to its customers via email:

“We are surprised and disappointed by the DMV's actions, given that Uber has been working with the Virginia government for months to modernize regulations that will put consumer safety first. Virginia should be standing for innovation, consumer choice and job growth."

Lyft also offered a statement to its customers:

“Current regulations surrounding taxis and limos were created before anything like Lyft's peer-to-peer model was ever imagined; we're committed to continuing to work with state officials to craft new rules for this new industry.”

New Regulatory Models

“Ridesharing” services like Uber and Lyft have fundamentally different business models than taxis or limousines. The companies argue that the differences are so pronounced that new regulations are necessary and current rules should not apply. Some states have stepped up to fill the gap. Colorado became the first state this month to pass a new law regulating so called “Transportation Network Companies”. The California State Utilities Commission has also issued regulations for Uber and Lyft.

Ridesharing applications present an interesting conundrum for regulators who struggle to deal with the fast pace of technological innovation. Keeping up with the newest mobile applications is difficult for bureaucrats who prefer- for good reason- to take all the necessary time to issue new rules. That slow pace often has a serious cost for innovators. Uber has enough capital to wait until policy makers act but other entrepreneurs may find their nascent ventures crushed under the pressure of antiquated rules. Regulators should consider these costs when writing rules for rideshare applications.

MaryCate Most contributed to this post.

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