From the Chicago Dispatcher, October 2007
What’s in a Lease?
What to expect when you lease a taxi in Chicago
By: Jonathan Bullington
Do you know what you are being charged for when you sign a taxicab lease? While the Rules and Regulations for Taxicab Medallion License Holders do explain, in section eight, the requirements for lease agreements, some drivers (and maybe a few owners) are still unclear as to what the maximum amount is that can be charged to lease a taxi.
Therefore, the Chicago Dispatcher has spoken with the Department of Consumer Services (DCS) and reviewed the rules and regulations for lease agreements to break down this information and help you better understand what to expect when you sign a lease.
Lease Types
Typically, medallion owners offer three main types of leases: 12-hour, 24-hour and weekly leases. (Although, other duration periods are allowed, as are “medallion-only” leases.) Twelve and 24-hour leases must include repair and maintenance, meaning that the lessor is responsible for the costs of all repairs and maintenance on the leased taxi and the lessee “shall not be liable for and shall be entitled to a prorated refund of any prepaid lease amount for any time when the lessee is without a vehicle in proper condition to transport passengers.” (Rule 8.01, paragraph “g”) Weekly leases can come with or without repair and maintenance.
Lease Rates
The total amount of money paid for a lease is made up of two rates: a max base rate and a total possible rate. Max base rates are as follows:
1. 12-hour lease: $57
2. 24-hour lease: $78.50
3. Weekly lease: $473 (with repair and maintenance)
The max base rate takes into account insurance, service agreement, Ground Transportation Tax and safety feature (i.e. shield or camera).
Any additional charges are commonly referred to as “allowable lease surcharges,” which make up the total possible rate. Some allowable lease surcharges are mandated by law. They include:
1. Workers Compensation: no more than $4.50 a day or $31.50 weekly.
2. Illinois Automobile Renting Occupation and Use Tax: 5% of rental agreement.
Another allowable lease surchare is a new vehicle model charge, at a maximum of $15 weekly.
Thus, as a rule, without additional, optional charges, the most a driver should pay per week for use of a cab is $528.15; $543.15 if the vehicle was purchased new and is less than one year old.
Of course with every rule there are exceptions. For example, there are provisions by which an owner may petition to charge more for a lease based on operational costs.
Additionally, leases can include other surcharges that may be charged only at the lessee’s express written request. They are:
1. Supplemental insurance: DCS recommended at $25 weekly but could be more or less based on lessor's reasonable costs actually incurred for such coverage.
2. Collision damage waiver charges: According to DCS Public Information Officer Bill McCaffrey, the recommended fee is $25 per week.
So, for a weekly lease with repair and maintenance and allowable lease surcharges, the total possible rate is $593.15 ($74.35 for 12 hours; $101.93 for 24 hours).
But I'm paying more than $593.15 for a weekly lease. Am I being overcharged? Maybe, maybe not. Again, there are provisions that allow an owner to petition to charge more. Also, some allowable lease surcharges could be more than their recommended amount. For example, an owner could charge more than $25 weekly for supplemental insurance if that charge is based on a lessor's “reasonable costs actually incurred for such coverage.”
Additional charges
The lessee may be responsible for the cost of gasoline incurred during his or her use of the vehicle.
Lessees can be charged a maximum late fee charge of $15 per hour for “failure to return the vehicle on a timely basis.” Leases can include a bond of no more than $500, which a lessor may use for reimbursement from the lessee only for the following reasons:
1. “Any unpaid yet owing lease charge.”
2. “Any collision damage to a vehicle if the driver does not opt for collision damage waiver.”
3. “Any intentional damage done to the vehicle or its equipment by the lessee.”
4. “Any actual costs for cellular phone usage chargeable to the lessee.”
5. “Any administrative fines actually paid by the lessor to the Department of Consumer Services due to the action of the lessee.”
Any remaining bond money after these charges have been paid must be returned within 45 days of the last day of the lease.
Lease Credit
If an owner has advertising on his/her cab, 35 percent of the previous month's revenue received from that advertisement must be paid to the driver in the form of a lease-rate credit.
What should a lease say?
Rule 8.08 details the minimum amount of information that must be included in a written lease. They are as follows:
1. “Names of lessor and lessee.”
2. “The term of the lease (including starting and ending time).”
3. “The lease rate, with base rate, insurance charges and city and state taxes disclosed and itemized separately.”
4. Additional allowable lease charges such as supplemental insurance coverage (each additional charge must be initialized by the lessee indicating the exercise of his option in accepting such charge).”
5. “Charges relating to and conditions imposed by any bond.”
6. “Late fee charges, if any.”
7. “Whether the lease includes an option to buy and if so, the option price and date on which it may be exercised.”
8. “Any and all other charges related to the lease of the medallion or vehicle, and/or otherwise subject to these rules and regulations.”
Additionally, all leases must include the following text in bold lettering:
“The undersigned lessor and lessee understand that discrimination in the solicitation, acceptance of, and the dispatching of service to passengers on the basis of race, gender, or geographic location of pick-up or destination within the city of Chicago is strictly prohibited.”
Before Signing a Lease
Although DCS said they receive few complaints about leases, they did urge drivers to ask questions and make sure they understand what they are being charged for before signing a lease. If a driver is concerned about being overcharged, DCS recommends he or she contact Deputy Commissioner Shellie Riedle at 2350 W. Ogden Ave. Phone (312) 746-4390. Be sure to provide her with the necessary information, including a copy of the full lease in question.
so many rules! is it even necessary? what is the point of a maximum lease rate? market should decide what the rate is. these rules just lead to mischief.
By Carl Engels for the Chicago Dispatcher
A “lease cap” is a legally imposed maximum amount a taxicab owner can charge a driver to lease the cab for a specific amount of time. Is a lease cap necessary? After all, government doesn't generally impose maximum prices on most goods and services in the economy. The city doesn't tell the grocery store how much it can charge for a dozen eggs, nor does it tell the gas station how much it can charge for a gallon of gasoline.
So why should the government stick their nose into how much a taxicab owner can charge a lease driver? Furthermore, government impositions of maximum prices often do more harm than good.
For example Florida has anti-gouging laws that were designed to protect the public after hurricanes hit. They’ll tell store owners and gasoline stations that they can’t raise their prices for water and gasoline. So what ends up happening is that there are long lines at checkout and at the pump. Fights ensue. Furthermore, since the prices can’t be raised, outsiders lose their incentive to haul in necessary supplies, which would accomplish two very important things - more supplies that are desperately needed and lower prices.
That does not mean that I’m suggesting that someone should be allowed to walk into a nursing home and sell bottles of water at a hundred bucks a pop. This is where government should step in to determine if specific circumstances shock the conscience. But market mechanisms do generally work, even in the aftermath of hurricanes.
Back to lease caps. Should they exist? The answer is yes. Wait a minute. I just exalted the merits of free trade and capitalism so how can I possibly say that the government should mandate the maximum amount that a cab owner can charge a driver?
The reason cab owners shouldn’t be allowed to charge whatever they want to drivers has to do with the fact that the government limits the number of cabs that are allowed to work the streets.
You can’t just walk into City Hall and get a taxi license like you would for other businesses. So if the number of taxi licenses is limited by the government, you could have a situation in which there are a lot more drivers than there are taxicabs. If there were no lease cap in place, drivers would bid up the price to lease a cab, leaving them with nothing.
So the lease cap is the protection to the driver that is designed to counter the medallion, which is the protection to the owner. So it’s not that the free market shouldn’t be allowed to work. It’s that the free market in the taxicab industry has already been constrained.
Mr. Engels,
Very informative! You're saying that the lease cap exists and is proper because the cities limit the number of taxi licenses through the medallion system.
What about places where there are no medallions or restrictions on the number of taxicab licenses. Are you saying the lease cap shouldn't exist in those places?
Salim
Salim wrote, "What about places where there are no medallions or restrictions on the number of taxicab licenses. Are you saying the lease cap shouldn't exist in those places?"
Yes! That's exactly what I'm saying. In a non-medallion system in which there is no limit to the number of taxicab licenses, if there are more drivers than cabs, a driver won't have to simply bid up the price to lease a cab to the point where he'll make no money. At some point, he'll simply go apply for a license himself and become an owner.
Carl Engels
Chicago Dispatcher
You are saying that in a system where the cab license are not limited somebody has to just go apply for a license.
But in a medallion system somebody just has to buy medallion.
Rohit:
I think the point Carl is making is that if there are more drivers than taxicabs, the drivers will not make any money if the number of cabs is limited, e.g. a medallion system.
So even though you can buy a medallion, that doesn't change the fact that the driver will still be left with nothing.
No lease cap is right!!!!!!
This is America. THe market should decide. If drivers don't want to pay they can go somewhere else.
