This has been the status quo for some time with taxi cabs, so yes, I'd say regulation is definitely not doing it's job of protecting consumers.

The problem happens systematically and the system fails to correct it because it lacks the proper alignment of incentives that keep it from working against the public.

That's pretty much what corruption is.

Would you say the same of third world traffic enforcement because the system is trying to stop the practice of shaking down motorists?

"The system" isn't equivalent to "the intentions of the people who built the system"... it's what actually occurs in every day life.