Signed into law last year, the INFORM Consumers Act, or INFORM Act, went into effect June 27, 2023. The INFORM Act was designed to help protect consumers through increased transparency and seller verification standards while ensuring the integrity of online retail marketplaces. This act sets national standards that marketplaces and high-volume third-party sellers have to follow.
The INFORM Act impacts a very specific set of online sellers. While many subscription companies will not fit the criteria, it will impact some like Amazon who have a membership or subscription component as part of their business model. And it is always prudent to be aware of new consumer laws and how they impact data collection, privacy, payments, and unscrupulous third-party sellers.
“People deserve to know basic information about those who sell them consumer products online. By providing appropriate verification and transparency of high-volume third-party sellers, the INFORM Consumers Act will deter online sales of stolen, counterfeit, and unsafe goods and protect consumers,” said U.S. Sens. Bill Cassidy, R-La., and Dick Durbin, D-Ill., in a statement, as reported by PYMNTS. “The bill is crucial to protecting Americans from scammers on the Internet.”
What does INFORM stand for?
The INFORM Act stands for Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act. The bill was originally introduced in 2021, but it was broader in scope and included “burdensome information collection and disclosure requirements for small businesses and individuals,” according to eBay Main Street. Some states proposed similar legislation of their own to try to curb fraud.
The original INFORM Act language was reworked and included as part of the Fiscal Year 2023 Omnibus Appropriations legislation which was passed by Congress and signed into law by President Biden.
“This compromise legislation avoids a patchwork of state laws and has broad support from consumer groups, retailers, and law enforcement,” said eBay Main Street.
The INFORM Act applies to high-volume, third-party sellers who make 200 or more sales per year that total more than $5,000 in a 12-month period. Those sellers are required to share government IDs, tax IDs, bank account and contact information to large marketplace platforms like Amazon, eBay and Target. Third-party sellers must complete the legal identification process within 10 days. If they fail to comply, they risk having their seller account suspended.
Responsibilities of online marketplaces
Like high-volume, third-party sellers, online marketplaces have responsibilities.
- Online marketplaces have 10 days to verify seller information. Though the act doesn’t spell out how the marketplaces must verify the identification and information provided, they must “reliably determine” that the information is valid and not falsified.
- Marketplaces must also keep the information from high-volume, third-party sellers current. Annually, marketplaces must require eligible sellers to electronically certify their information has not changed. Sellers have 10 days to respond.
- For high-volume, third-party sellers that have annual gross revenue of $20,000 or more, the online marketplace must disclose the following information on each of the seller’s product listing pages or in order confirmation messages and account transaction histories: seller’s full name (business name or name the seller uses on the platform); the seller’s physical address and contact information where consumers can have “direct, unhindered communication” with the seller; physical address for product returns; and if the seller used a different business to supply the product purchased by a consumer, the marketplace must disclose that and, if requested by the consumer, the name, address and contact information for that business.
- Provide a mechanism for reporting suspicious activity. The mechanism must be clear and conspicuous on the product listing of any eligible seller, and it should allow for electronic and phone reporting of suspicious marketplace activity.
- Provide sellers written or electronic notice of non-compliance. If the seller doesn’t provide the information within 10 days of the notice, the marketplace is required to suspend future sales activity until the seller is in compliance.
- Suspend eligible sellers if they make false statements to qualify for a limited exception for businesses that operate out of a person’s home or if the seller does not reply to consumers in a reasonable time frame.
- “Implement and maintain reasonable security procedures and practices” to protect the data provided by the high-volume, third-party sellers and understand that they cannot use that data for any other purpose “unless required by law.”
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The Federal Trade Commission, in conjunction with individual states, are responsible for enforcing the law.
Online marketplaces can implement their own measures on collection, verification and disclosure beyond what the INFORM Act requires. The Act is considered the floor, or minimum standards, that a marketplace must follow to be in compliance.
Enforcement agencies can impose civil penalties of up to $50,120 for each violation, and they can request injunctive relief. The act does not support a private right of action, so impacted individuals cannot litigate based on the act itself.
While high-volume, third-party sellers are the focus of the INFORM Act, the act’s requirements could impact small businesses by imposing additional documentation requirements. The goal of the act, however, is to strike a balance between protecting consumers and supporting small businesses, says PYMNTS.
Which online sellers are impacted?
The INFORM Act applies to high-volume, third-party sellers who make 200 or more sales per year that total more than $5,000 in a 12-month period. Those sellers are required to share government IDs, tax IDs, bank account and contact information to large marketplace platforms like Amazon, eBay and Target. Third-party sellers must complete the legal identification process within 10 days. If they fail to comply, they risk having their seller account suspended.
Three questions for third-party sellers
The FTC suggests that third-party sellers ask themselves three questions to see if the INFORM Act applies to them.
1. Do you sell on a platform that meets the law’s definition of an “online marketplace”?
An “online marketplace” is defined as a person or business that operates a consumer-directed platform that allows third-party sellers to engage in the “sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States.” Though most online marketplaces are national brands, smaller niche platforms may also fit the definition.
2. Do you sell merchandise that meets the law’s definition of “consumer product”?
The law defines “consumer product” to include “tangible personal property for sale and that is normally used for personal, family, or household purposes.”
3. Do you meet the definition of a “high-volume third-party seller”?
The law defines a “high-volume third-party seller” as a seller in an online marketplace that doesn’t operate the online marketplace and that, in any continuous 12-month period during the past 24 months, has had 200 or more separate sales or transactions of new or unused consumer products, and $5,000 or more in gross revenues.
In calculating the number of sales or amount of gross revenues for the “high-volume” threshold on a given online marketplace, the only sales that count are ones made through that online marketplace and for which payment was processed by the online marketplace, either directly or through its payment processor.
The law specifically exempts businesses that have a contractual relationship with the marketplace to manufacture, distribute, wholesale, or fulfill shipments of consumer products; that have made their name, business address, and contact information available to the general public; and that provide the marketplace with identifying information that the marketplace has verified.
Amazon’s response to the INFORM Act
In an email to Inc., Amazon said it has a zero-tolerance policy for counterfeit merchandise.
“We have proactive measures in place to prevent counterfeit products from being listed and continuously monitor our store. If we identify an issue, we act quickly to protect customers and brands, including removing counterfeit listings and blocking accounts. We applaud the new INFORM regulation in establishing a baseline expectation for the entire industry and one that is nationally consistent and will help ensure that small businesses selling products online do not encounter different rules or regulations on a state-by-state basis,” Amazon wrote.
Amazon previously posted a blog about the INFORM Consumers Act on its blog, but the article is blank.
Additional Resources
Amazon: Amazon Announces Anti-Counterfeiting Exchange to Help Eliminate Counterfeits Across the Retail Industry
FTC: INFORM Act statute
FTC: The INFORM Consumers Act and Online Marketplaces: What to Know
eBay: INFORM Consumers Act
FTC: Informing Businesses About the INFORM Consumers Act
FTC: Portal for reporting potential fraud
FTC: What Third Party Sellers Need to Know About the INFORM Consumers Act
Michigan State University’s Center for Anti-Counterfeiting and Product Protection: INFORM Consumers Act
PYMNTS: 5 Key Things You Need to Know About the INFORM Act
PYMNTS: INFORM Act Cracks Down on Organized Retail Theft
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