Uber drivers are using ride share income to lease new cars, industry says

NationalPost.com
Dec. 17, 2015
Olivia Bowden

An increasing number of drivers are leasing new vehicles in order to work for Uber, lured by the prospect of a low-cost way to operate as a taxi, but taking a huge risk when it comes to liability.

“We do receive a number of applicants in Ontario that are saying upfront that they work for Uber,” said Craig Clowes, CEO of online leasing company Canada Car Loans, adding that these drivers use whatever income they earn working for Uber in order to qualify for the lease.

Clowes said his company considers working for Uber as being “self-employed,” and as such wouldn’t necessarily be disqualified from borrowing based on income.

In fact, lenders may not even ask a driver for proof of employment if they have good credit, he said. Even one with bad credit can usually qualify for a lease using the previous year’s tax return.

The cost of leasing a car and driving for Uber are much lower than working as a taxi driver. For example, the cost of leasing a taxi licence in Toronto was $1,718 per month, according to the most recent data released by the city. Leasing costs can vary, but a late model Toyota Corolla was recently advertised for $156.61 a month for a 48 month agreement.

Toronto cabbies who are full-time lease drivers without a second driver made $12,948 a year, after costs that include lease fees, broker fees, car financing payments, maintenance and repairs, insurance and gas, a report commissioned by the city in 2008 said.

Uber Canada said in September the average Toronto Uber driver made $3,125 in the first year it operated, with more than half working less than 10 hours per week. If they were to work full time, gross earnings would amount to $48,000 per year, without additional costs for licenses and commercial insurance.

To get around mileage restrictions that are often part of the leasing agreement, drivers often turn to the lease takeover market, said Jay Miri, founder of Car Lease Canada, a website that connects those wanting to drop their lease with those who are looking for a cheaper leasing alternative.

“Many of the lease takeovers posted by our users offer higher mileage allowances, extended warranties, and cash incentives — options that are highly desirable for Uber drivers,” he said.

George Iny, director of the Automobile Protection Association, said taking over a lease from someone who has paid for, for instance, an additional 40,000 kilometres could be beneficial for a potential Uber driver.

However, while the lower cost — and ability to lease a new car — of being an Uber driver may be alluring, operating as a taxi without purchasing can be risky, and costly. “The standard owner’s policy is very clear, that there’s an exclusion of coverage if you use it for commercial purposes. You are not allowed to make money using that car,” said Chella Turnbull, a lawyer at Zuber and Company LLP in Toronto.

And since the leasing company is not involved with the process of insuring a driver — and is not obligated to share information about an applicant’s income — the majority of drivers don’t tell insurance companies they plan to work for a ride-sharing service.

Cliff Ritter, co-founder of Lowestrate.ca, said he is aware of accident reports from police that suggest drivers that apply to lease new cars through his site — which offers both auto leases and insurance — are engaged in ride sharing. “I’m confident that there are people who take insurance from us who use it for things like ride shares and part time jobs that require a car,” Ritter said

“The legal framework never anticipated Uber,” said David Powell, president and CEO of the Canadian Finance and Leasing Association.

That may be changing, however. In September Intact Financial Corp. announced a partnership with Uber to work on a new insurance policy to cover ride share drivers. 

In the United States, Uber has a program that allows drivers to lease a vehicle through the ride share conglomerate in 12 cities, including Houston and San Francisco.

Lease terms for the Xchange program include an initial payment of US$250 and weekly payments of between US$106 and US$139, depending on the car.

A spokesperson for Uber Canada declined to comment on whether Uber is planning to bring this kind of leasing program to Canada.