Op-Ed

FTC’s $20Mn Indictment of Uber

One more piles up in the jar. Another regulatory jolt for the apps out there.

This time it was the Federal Trade Commission that wanted Uber to cough up $20 million in fine. The allegation was about misleading driver earnings’ claims of hourly or yearly income and exaggerating income figures. The money was supposed to find its way back to drivers who were being misled as per this case.

Overstating earnings in advertisements in various media and stretching the median annual income numbers had caught FTC’s flak and it felt that the company should pay for this misleading communication.

And it will. Hopefully. Turns out that the San Francisco-based ride-hailing company has agreed to pay $20 million to resolve FTC’s charges that it misled prospective drivers with exaggerated earning claims and claims about financing through its Vehicle Solutions Program. The $20 million will be used to provide refunds to affected drivers across the country, an FTC press update mentions. Let’s pore over the FTC complaint for a moment here. It talks about the company having misled prospective drivers about the terms of its vehicle financing options and alleged that Uber claimed on its website that uberX drivers’ annual median income was more than $90,000 in New York and over $74,000 in San Francisco. As per FTC, drivers’ annual median income was actually $61,000 in New York and $53,000 in San Francisco.  In other words, only less than 10 percent of all drivers in those cities earned the yearly income Uber touted. Another allegation slapped on Uber was that it made high hourly earnings claims in job listings, including on Craigslist, but that the typical Uber driver failed to earn those advertised hourly amounts in various cities.

Despite Uber’s claims, from at least late 2013 through April 2015, the median weekly purchase and lease payments exceeded $160 and $200, respectively, the FTC alleged and explained that Uber failed to control or monitor the terms and conditions of the auto financing agreements through its program and in fact, its drivers received worse rates on average than consumers with similar credit scores typically would obtain, according to the FTC’s complaint.

Sounds like a déjà vu. Not entirely.

In part yes, because in India too, stirrings of frustrated and disoriented drivers associated with some major app-platforms have started surfacing. Drivers have started complaining and revealing that heavy incentives that were promised and doled out earlier have abruptly nosedived.  Imagine getting just Rs 3,000 for completing 15 or more trips to achieve which one have to work 17-20 hours? Imagine having monthly income crumbling from some one lakh per month to less than Rs. 20,000 – out of nowhere.

That should explain the sporadic strikes happening across India, including not only the ones who are under an app’s hood (the legacy auto-rickshaws and regular cabs) but also drivers working with these apps.

When in a period of a year, the incentive scheme gets reduced by 20-40% and qualifying criteria suddenly become more stringent, flanked by a number of penalties, and a hike in commission fee to 25%, it’s not hard to understand why drivers would revolt. Specially, as the the pay-outs of the drivers have shrunk drastically.

Source- Wikipedia

There’s more. Waiting time fee is being wiped off, and in the case of some apps, the burden of paying for mobile data, or penalty for declining a trip is also falling on a driver’s shoulders.

Some of these measure may have their rationale in new strategies or adapting to market’s evolution but nothing explains the consistent mis-selling (some apps had promised Rs. 1 lakh earnings to drivers yeah). The market has shifted, as some industry watchers reckon, from a driver-centric one to a customer-centric one. But that should not mean that initial promises made to drivers to expand the network and penetrate the market, should be backtracked.

Uber maintains that it has been making ‘many improvements to the driver experience over the last year and will continue to focus on ensuring that Uber is the best option for anyone looking to earn money on their own schedule. That’s something that needs more than lip-service because drivers constitute a crucial ingredient of the experience, whether you hail a cab with an app or otherwise.

Uber’s refuted a lot of charges with the same old argument: that it is ‘a mere facilitator of rides’ and does not fall under the ambit of regulations that apply to transportation companies and common carriers. There is no room for violating FTC law “unfair or deceptive acts or practices in or affecting commerce”. The same clarity should be visible in India, by people on both the sides.

Regulators would have to take a comprehensive and new-age view of the ramifications that new market models are cascading every time. Whether it an app, a radio-taxi or a private fleet, interests of stakeholders (be it a driver or a passenger) should be safe-guarded in a fair and predictable way.

 

Let’s take a leaf out of FTC’s stance. In addition to imposing a $20 million judgment against Uber, the stipulated order also prohibited the company from misrepresenting drivers’ earnings and auto finance and lease terms, and barred the company from making false, misleading, or unsubstantiated representations about drivers’ income; programs offering or advertising vehicles or vehicle financing or leasing; and the terms and conditions of any vehicle financing or leasing.

Like Jessica Rich, Director of the FTC’s Bureau of Consumer Protection captured well: “Many consumers sign up to drive for Uber, but they shouldn’t be taken for a ride about their earnings potential or the cost of financing a car through Uber,” said “This settlement will put millions of dollars back in Uber drivers’ pockets.”

Now that’s tomorrow’s worry. If things change when the driver-centric market changes to customer-centric one, what can happen when the customer-centric market changes to a VC-centric one? Quite a thought.

Pratima H

………………

Sources:

https://www.ft.com/content/71dded36-de93-11e6-86ac-f253db7791c6

http://www.wsj.com/articles/uber-to-pay-20-million-to-settle-ftc-charges-on-earnings-claims-for-drivers-1484862070

http://www.houstonpress.com/news/feds-fine-uber-20-million-for-misleading-ads-about-potential-driver-earnings-9147098

https://www.law360.com/articles/883544/uber-pushes-pa-appeals-court-to-nix-11-4m-fine

http://www.businessinsider.in/california-bill-self-driving-violators-uber-punishable-fine-2017-1?r=US&IR=T

http://asmdc.org/members/a19/news-room/press-releases/san-franciscans-push-bill-to-curb-illegal-self-driving-cars

http://fortune.com/2017/01/21/mallinckrodt-ftc-fine-monopoly/

http://www.wsj.com/articles/ftcs-qualcomm-suit-exposes-tensions-in-smartphone-industry-1484838471

http://www.upi.com/Top_News/US/2017/01/20/Western-Union-to-pay-586-million-fine-to-settle-fraud-charges/4841484886369/

http://asmdc.org/members/a19/news-room/press-releases/san-franciscans-push-bill-to-curb-illegal-self-driving-cars

http://www.hindustantimes.com/delhi/less-money-longer-hours-what-has-changed-for-delhi-s-ola-uber-cab-drivers/story-I8GwWptKRW602AQO9kPzLL.html

https://www.ftc.gov/news-events/press-releases/2017/01/uber-agrees-pay-20-million-settle-ftc-charges-it-recruited

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