After Being Hit With A Cease And Desist, Car-Sharing Startup RelayRides Suspends Rentals In New York

It’s becoming increasingly commonplace for startups in the so-called “sharing economy” to take heat from regulators who seek to hold them to the same business standards as incumbent businesses. The latest company to come under fire from regulators is peer-to-peer car-sharing startup RelayRides, which received a cease-and-desist notice from New York State’s Department of Financial Services (DFS).

The DFS has charged RelayRides with “false advertising and violations of insurance law,” which it says could put the public at risk. Along with the cease and desist, the department has issued a “scam alert” due to intricacies in New York insurance law that could leave those who use car-sharing services like RelayRides liable in the case of an accident.

In short, the DFS warns that the insurance from RelayRides’ provider Hudson Insurance Company may not cover damages that occur while a car is being rented through the service. Furthermore, participating in these types of car-sharing programs could be a violation of their existing policies and could result in the cancellation of their insurance.

As a result, RelayRides has agreed to suspend new rentals in the state while it tries to work with the department on the issue. In a blog post, CEO Andre Haddad said the company would honor existing reservations in the meantime.

The suspension of service was announced one day after the startup acquired San Francisco-based competitor Wheelz. That acquisition was meant to add some technology in the form or proprietary hardware that could be used to make car sharing more easily accessible.

RelayRides isn’t the only “sharing economy” startup that has come under fire recently. The cease-and-desist against the car-sharing startup comes at the same time that ride-sharing startup SideCar is coming under regulatory scrutiny from local officials in Austin, Philadelphia and New York City. Airbnb also is being looked at more closely in major metropolitan cities like New York, where half of its rentals are deemed illegal.