Flightcar: Rent Out Your Car While It Sits at the Airport

July 19, 2013July 19, 2013Danny Vinik Leave a comment

A startup out of San Fransisco is looking to revolutionize traveling to and from the airport. The service is actually pretty intuitive: instead of just leaving your car parked at the airport, rent it out to fellow travellers. It’s pretty simple. You list your car online and drop it off at the Flightcar station at the airport. Renters see your car listed on the Flightcar website and can book it for whatever days they need (that you list as available). The startup checks the renter’s driving history, cleans the car and insures it up to $1 million in damages. The company even cleans it afterwards and pays for parking. Of course, the service takes a chunk of money from each rental, but a traveller can still make $5-$20 per day from renting their car instead of paying costly parking rates. The rental prices are cheaper than most rental car agencies so the renter saves money as well.

Unfortunately, it’s running into some legal hurdles.

Other rental car companies are furious that Flightcar operates as a rental car company without following any of the regulations and San Francisco has taken it upon itself to go after the startup:

The city has filed a lawsuit against FlightCar, hoping to shut it down until it complies with the regulations, including conducting pick-ups and drop-offs at a special area, paying 10 percent of gross profits to the airport and paying a $20 per rental transaction.

This is utter crap. Flightcar is very much like a rental car company except for two major differences: it pays for parking and doesn’t use airport land.

Rental car companies must operate in specific locations to avoid confusion and prevent traffic jams at airports. These firms have dozens of cars and must keep them near the gate so that travellers can rent a vehicle quickly without waiting. This requires that all of those cars be nearby and readily available. In exchange for giving them space to have those cars close by, the airport demands 10% of the gross profits and a $20/rental transaction fee. That’s the price of doing business.

But Flightcar doesn’t need to enter into that transaction. Instead of having all of its cars readily available in one location, it pays for airport parking, communicates with its customers in advance and meets them at the gate with their car when they arrive. No traffic jams. No need for an agreement between the airport and the company.

The firm has already taken care of the possible liability issues by insuring cars for up to $1,000,000 in damages. It checks renters’ driving history before they are given the car and makes sure the vehicle is clean. The company will undoubtedly run into obstacles as it grows in size. Bringing cars from the parking lot to the curb is labor-intensive, especially compared to a rental car company which needs just a couple of people to check travellers in and give them the keys to their car. And Flightcar cannot right now rent cars to people right when they arrive. It must be done in advance online, limiting the firm’s customer base.

This is a perfect example of the “sharing economy.” Travellers save money on parking and a make a bit renting out their cars. Renters save money too. The company takes a cut from each transaction to make the business profitable. Cars are used more efficiently as they don’t sit around in parking spots for the duration of the traveller’s trip. That opens up more parking for other customers. Everyone wins – except the entrenched interests of the rental car companies. They lose and they aren’t going down without a fight.

So, while Flightcar will have to overcome a number of structural issues as it continues to grow, there’s no reason for San Francisco to step in and try to shut down the company. It’s not doing anything illegal. Like the lawsuit against Airbnb, the case against Flightcar is yet another example of a city sticking up for its business interests and not for its people.

The CFPB Has Adequate Checks

July 16, 2013Danny Vinik Leave a comment

As a fan of the Consumer Financial Protection Bureau (CFPB), I am very happy that Richard Cordray will almost certainly be confirmed as its legitmate head later this evening. It took Majority Leader Harry Reid (D-NV) almost deploying the nuclear option in the Senate, but it appears that Cordray’s nomination will overcome a filibuster and that he will be confirmed as the agency’s first director.

So, why did it take so long for his confirmation? Not because he isn’t qualified. Republicans have no qualms about his qualifications. What Republicans have objected to is the agency itself. A letter to President Obama on February 1st this year signed by 43 Republicans outlined their concerns. They are as follows:

Establish a bipartisan board of directors to oversee the Consumer Financial Protection Bureau
.

Subject the Bureau to the annual appropriations process, similar to other federal regulators
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Establish a safety-and-soundness check for the prudential regulators

After today’s vote to proceed to his nomination, Senator Chuck Grassley (R-IA) complained that “we don’t have adequate checks within the bureaucracy.”

Well, the last few days demonstrate why Dodd-Frank created a single director for the agency and not a board. Just look at the National Labor Relations Board (NLRB). The Board currently has just three members and on August 27, when Mark Pearce’s term expires, it will be unable to hold a quorum and thus will have no power. Without Reid’s willingness to invoke the nuclear option, the GOP would have continued filibustering all NLRB nominees, effectively rendering the agency useless. Is that what Democrats want to see happen to the CFPB? Of course not!

Having a board of directors instead of a single director has its own advantages. More voices at the top of the agency can prevent it from acting outside its purview or not enforcing strict enough regulations. But it also slows the agency down with more people at the top. It would also require multiple confirmations to function. The GOP could confirm a couple of nominations and just filibuster the rest to prevent the agency from operating. As of today, that should be a thing of the past with the agreement between the two parties never to filibuster executive nominations again. But up until today, Democrats did not just fear that the GOP would obstruct the agency this way; they knew it would. Republicans can appeal to change it now that there is an agreement on filibusters, but they still must demonstrate why a board is better than a single director for the CFPB.

The CFPB also has to report on its actions and appear before Congress. It is subject to an annual audit by the Government Accountability Organization (GAO). It’s also monitored by the Inspector General for the Federal Reserve Board of Governors. Republicans want a dedicated Inspector General for the agency. Fine by me. I’m not sure why Democrats blocked the amendment earlier this year, possibly out of anger over Republication obstructionism over Cordray. Now that he’s confirmed, Democrats should relent and allow the agency to have its own IG.

How about subjecting the budget to the annual appropriations process? This one is easy: Hell No! Republicans’ favorite way to prevent agencies from using their full powers is to reduce or eliminate their funding. House Republicans have repeatedly voted to slash the Commodity Futures Trading Commission’s (CFTC) budget even as the agency has taken on a greater regulatory role after the passage of Dodd-Frank. The Securities and Exchange Commission (SEC) has seen its budget cut as well. Neither agency has near enough money to compete with the seemingly endless cash from Wall Street. Why would Democrats allow the same thing to happen to the CFPB? The agency receives a maximum of 12% of the Federal Reserve budget. It’s not unlimited and if it wants more funding, then it must ask Congress for it.

As for the safety-and-soundness check, Mike Konczal explains it better than me:

There is already a safety-and-soundness check at the OCC, which, through the Financial Stability Oversight Council, can vote on vetoing CFPB actions. It’s not clear why this is important to Republicans. A cynical reading would be that since profit-making is one way to achieve the safety and soundness of banks that the CFPB regulates, anything that might get in the way of banks ripping off their customers would hurt safety and soundness. And, indeed, big fines and settlements for illegal practices do, in theory, mean more capital that they’ll have to raise, or lower earnings for shareholders. But aren’t such fines and settlements how we provide accountability to the financial sector?

The FSOC can veto any CFPB action if it endangers the “safety and soundness of the United States banking system or the stability of the financial system of the United States.” That’s a pretty good safety-and-soundness check. If Republicans really want to interpret such a check so that any rule cannot reduce the profits of banks, that’s ludicrous. Otherwise, I’m not sure what they want. The Bureau must already “consult with prudential and other federal regulators during rulemaking regarding prudential, market and systemic objectives.”

So, it’s a happy day for CFPB-lovers out there. The agency will finally have a legitimate head without giving into Republican demands. Democrats should agree to install a dedicated IG for the Bureau and let the agency function as it was designed from here on out. It’s about time it had its full powers.

Inflation is 1.6%: So Let’s Tighten

July 16, 2013Danny Vinik Leave a comment

New CPI numbers are out this morning with headline CPI coming in at 1.8% and core CPI at just 1.6%. The Fed generally uses core CPI (which excludes food and energy prices) when it makes monetary policy as it is less volatile and more indicative of long-run inflation. Last month’s core CPI was 0.2% as was this month’s. On a year-over-year basis, the indicator fell from 1.7% in May to its current 1.6%. Yet, what have markets spent the last month talking about? When the Fed will start to tighten.

This continues to make no sense and has not made any sense for years now.

The Fed has a goal of 2% inflation. When inflation is less than that 2%, the Fed should instill looser monetary policy to raise it. When inflation is below 2% and unemployment is high, this should be a no-brainer. At the very very least, it shouldn’t be talking about when it will instill tighter monetary policy.

If the Fed were really sticking to its goal of 2% inflation, it would overshoot and undershoot it a relatively equal amount as it attempted to hit that target exactly. Instead, the Fed has consistently undershot its goal. Inflation has been below 2% for years now. Meanwhile, unemployment sits at 7.6%. There’s a real human and economic cost to the Fed’s persistent committment to undershooting its 2% target. Its talk over the past month of tapering has already raised mortgage rates. But let’s continue to talk about tightening with inflation coming in under target. That makes perfect sense.