Caveat Sharer

Regulators clamp down on room-rental and car-sharing services

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One of the most successful business models of the postrecession era, sharing is increasingly under attack. Familiar to anyone who has used Airbnb to rent a home or RelayRides to rent wheels directly from a car's owner, these services have boomed by pleasing owners and renters alike. Someone whose house is going to be vacant can pick up extra cash by renting it out through a company like Airbnb; the vacationer, meanwhile, gets a bargain.

But now these outfits are getting so big that they're attracting the ire of the established industries they aim to disrupt. And regulators are getting involved too. Several sharing-economy companies are facing cease-and-desist orders and have been accused of failing to comply with local insurance, tax and permit rules. Sidecar, which connects car owners to people needing a ride, disabled its mobile app in Austin after the city council ruled that it was essentially an unlicensed taxi service. FlightCar, which connects car renters and owners at San Francisco International Airport, has been ordered to pay SFO 10% of gross profit and $25 per rental, just as car-rental companies do. In some cases, individual users are being targeted. A New York City judge recently fined an Airbnb host $2,400 for operating an "illegal hotel" because he was renting out a bedroom in his apartment. The judge ruled that he had violated city ordinances because his guests were "complete strangers."

But the companies are fighting back. FlightCar, for example, has refused to pay the airport fees, arguing that it is not a traditional car-rental company. It doesn't have a terminal counter, shuttle service or parking lot, so the company believes that forcing it to cough up airport fees is unreasonable. "These are new models, and they don't fit into the old boxes," says Arun Sundararajan, a professor at New York University's Stern School of Business who studies the sharing economy.

The entrepreneurs behind these start-ups insist that they aren't opposed to all regulation, just rules that seem to unfairly target their business models. "We embrace safety regulations," says Andre Haddad, CEO of RelayRides, a peer-to-peer car-rental service. Kevin Petrovic, co-founder of FlightCar, says he welcomes any rules that let the companies and their users know exactly where they stand. "It would be nice to be able to expand to other markets and know, frankly, what our chances were of being sued," he says.