Dive Brief:
- The INFORM Consumers Act became law today. Under this new federal legislation, online marketplaces must annually collect and verify specific identifying and financial information for third-party sellers on their platform if they reach a certain “high-volume” sales threshold as defined by the law.
- The Federal Trade Commission defines a high-volume seller as an entity that had 200 or more transactions and $5,000 or more in gross revenue in any continuous 12-month period during the past 24 months. Under the new rules, digital marketplaces must now collect contact information, a tax ID number and bank account information for these sellers. The marketplaces must collect the information within 10 days of a vendor reaching high-volume status and verify it within 10 days of receiving it.
- The law’s goal is to add transparency to online transactions and to stop the sale of counterfeit or stolen merchandise. The Inform Act also makes certain information available to consumers and provides a way for marketplace customers to report suspicious conduct by high-volume, third-party sellers.
Dive Insight:
Retailers have increasingly blamed theft – both in brick-and-mortar stores and online – as a threat to safety and profits. External theft and organized retail crime drove shrink to $94.5 billion in 2021, according to a National Retail Federation survey. The Inform Act seeks to reduce that by compelling online marketplace retailers to collect and verify key information, and by establishing enforcement criteria and penalties for not following the rules.
Retailers that don’t comply may face civil penalties of $50,120 per violation. The new rule also empowers state attorneys general and other officials to initiate federal court cases and take action under state law to seek restitution.
Formally known as the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act, the new rules apply to any “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,’” according to the FTC.
Put more simply, the Inform Act requires marketplaces to disclose more information about who is selling what on their platform. Sellers that meet the sales threshold must supply that information or be suspended from the platform, and consumers have a way to report suspicious online sales activity.
“The industry is hopeful that requiring online marketplaces to collect, verify and disclose information about high-volume third-party sellers, marketplaces will finally evict bad actors from their platforms,” Lisa LaBruno, the senior executive vice president of retail operations for the Retail Industry Leaders Association, said in a Tuesday statement. “In turn, consumers can shop with more confidence that the products they purchase online are legitimate.”
Although the legislation was passed six months ago, it became effective Tuesday. The delay was intended to give retailers time to meet the new standards. The new rules will affect some of the retail industry’s largest and best-known companies like Amazon and eBay. Meta, the parent company of Facebook, is also subject to the new rules by operating Facebook Marketplace. Other retailers likely subject to the new rules include Etsy, Wayfair and Flipkart.
“We’re grateful to lawmakers who partnered with eBay to align on one federal compliance standard that prevents burdensome information collection requirements,” eBay said on a resources page about the Inform Act.
Sellers with gross annual revenue of $20,000 or more on a single marketplace must disclose their information on product listing pages or in order confirmation messages. The information must include the vendor or business name and full contact information – an address, phone number and an email or other means of electronic messaging.
Businesses that have a contract with a specific marketplace to make, distribute or fulfill shipments of consumer products, businesses that have already made their contact information public, and the online marketplaces themselves are exempt from the new requirements. The law also has a “limited exception for high-volume third-party sellers that operate only out of their homes,” the FTC said in a business resource guide.
“While this law is not a miracle cure for organized retail crime, it’s a significant dose of help that finally holds marketplaces accountable when their platforms are used to sell stolen product,” LaBruno said. “Coupled with the [organized retail crime] task forces launched in multiple states and cities across the country, we’re finally beginning to see the resources, collaboration and commitment needed to turn the tide in this fight.”
