It’s not every day (especially these days) that Congress passes a new consumer protection law. But last December, Congress did just that, passing the INFORM Consumers Act with strong bipartisan support.
The new law, which took effect on June 27, imposes brand-new obligations on “online marketplaces": platforms like Amazon and eBay where third-party sellers (ranging from large companies to individuals operating out of their homes) market their products to consumers.
Although the law doesn’t cover sellers directly, it will significantly affect their operations too.
What does the law require? In brief, INFORM requires online marketplaces to:
Collect and verify seller information: Marketplaces must collect and verify contact and bank information from “high volume third party sellers” operating on their platforms. Such sellers are those that (in any 12-month period during the previous 24 months) have entered into 200 or more transactions involving new or unused products, with gross revenues of $5000 or more, and for which payment is processed by the marketplace or its payment processor. Marketplaces also must obtain updated information at least annually.
Disclose information to purchasers: For high volume sellers with gross revenues of $20,000 or more, marketplaces must clearly and conspicuously disclose sellers’ contact information, so purchasers have recourse if something goes wrong. The disclosures must appear on the seller’s product listing page or in the purchaser’s order confirmation and transaction history.
Reporting mechanism: Online marketplaces must include a reporting mechanism on high volume sellers’ product listing pages to allow consumers to report “suspicious marketplace activity” to the marketplace, by phone or electronically.
Suspend noncompliant sellers: Marketplaces must suspend any seller that fails to comply with the above requirements, following a tightly prescribed process.
Protect the information: Marketplaces may only use the data they collect to comply with the law and must provide reasonable security for it.
Why was it passed?
The law is designed to deter criminals from selling stolen, counterfeit, and defective goods online, where they’ve been able to exploit the anonymity of the web to evade detection and accountability. As the law’s sponsors made clear, these practices harm both consumers and legitimate businesses. Until passage of INFORM, online marketplaces had minimal obligation to verify the identity of their online sellers. INFORM changes all of that.
Who will enforce the new law?
INFORM charges the Federal Trade Commission (FTC), the state Attorneys General (AGs), and “other state officials” with enforcement, gives the FTC rulemaking authority, and authorizes substantial civil penalties (up to $50,120) per violation.
The FTC has made it clear that it is taking the law seriously, issuing business and consumer guidance, warning letters to 50 online marketplaces, and yet another alert in the run-up to the effective date.
These materials emphasize that the FTC expects compliance on “day one.” Given the AGs’ longstanding focus on organized retail crime (the source of many of the bogus goods sold online), we expect them to enforce the law vigorously as well.
How will the law affect online marketplaces and sellers in practice?
The law imposes all of its duties on the marketplaces, which means they are responsible for collecting and verifying the information, posting the disclosures, and suspending sellers that fail to cooperate -- subject to significant penalties for noncompliance.
Marketplaces should have a plan right now in place to make all of this happens, and should monitor it to make sure it’s working. While the FTC and AGs will likely wait a bit to start enforcing the law, they won’t wait long. “Platform accountability” has been an important theme for both the FTC and the states.
While high volume third party sellers aren’t directly covered by the law, the stakes are high for them too. They must be ready to furnish contact and bank account information (technically within 10 days of the law’s effective date), and to cooperate in providing the disclosures and reporting mechanism. Otherwise, they risk suspension by the online marketplaces.
It’s still early in the life of this new law, and the FTC and states have yet to enforce it. However, INFORM changes the rules of the game for selling online, and online marketplaces and sellers need to pay attention.