INFORM Consumers Act creates new compliance requirements for online marketplaces

The INFORM Consumers Act has put the heat on online marketplaces to prevent online shopping fraud. Read on to understand:

• What is the INFORM Consumers Act?
• What are the INFORM Act requirements?
• Is there an exception for high-volume marketplace sellers working out of their residence?
• What happens if you don’t comply with the INFORM Act?
• Will the INFORM Act succeed?

The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, or INFORM Consumers Act, requires online marketplaces to take steps to protect consumers from counterfeit, unsafe, and stolen goods. It took effect June 27, 2023.

Why put the onus on the marketplace platforms? Because “counterfeit and stolen products have become pervasive on major online marketplaces,” explains a Congressional report on the INFORM Consumers Act. The new law establishes a uniform national standard with the goal of protecting consumers and legitimate business activity.

The INFORM Consumers Act mandates that an online marketplace:

• Collect and verify certain information from high-volume third-party marketplace retailers
• Provide additional information for some high-volume sellers
• Provide “clear and conspicuous” reporting options for customers
• Comply with data privacy and security requirements

A high-volume third-party seller is a retailer selling through an online marketplace that has 1) at least 200 discrete sales or transactions, and 2) an aggregate total of $5,000 or more in gross revenues during any 12-month period during the previous 24 months. The 200 discrete sales or transactions must have been made through the third-party marketplace, and the marketplace must have processed the payment (directly or through its payment processor). 

An online marketplace must collect the following information from all high-volume third-party sellers no later than 10 days after they qualify as a high-volume seller on the platform:  

• Bank account number (or the name of the payee if the seller has no bank account)
• Contact information: 
  • If the third-party merchant is a business, a copy of a valid, government-issued record or tax document that includes a business name and physical address (or a copy of a valid government-issued identification that includes the name of an individual acting on behalf of such seller)
  • If the third-party merchant is an individual, the name of the individual
• Business tax identification number or taxpayer identification number (TIN) if the merchant is an individual; Avalara 1099, powered by Track1099, can match TINs for recipients  
• A current working email address and phone number for the third-party merchant

The online marketplace must verify this information within 10 days of receiving it and at least once each year. Any information contained in a valid government-issued tax document can be presumed verified as of the date of the document.

If a high-volume seller doesn’t respond to a request for verification or provide the necessary certification within 10 days of receiving the request, the online marketplace must suspend future sales activity from the seller on the platform until the information has been received and certified.

There are additional requirements for third-party marketplace sellers with an aggregate total of $20,000 or more in annual gross revenues on the platform. 

The marketplace must clearly disclose the following information on each of these seller’s product listing pages, order confirmation messages, or account transaction histories on the platform:

• The seller’s full name, physical address, and contact information to facilitate the customer’s “direct, unhindered communication with the seller;” contact information includes a current working phone number, current working email address, or other means of direct electronic messaging that may be provided by the online marketplace (as long as the other means don’t prevent the marketplace from monitoring communications between a high-volume third-party seller and a customer for fraud, abuse, or spam)  
• If the seller used a different vendor to supply the product to the customer upon purchase (e.g., a dropship model), the high-volume third-party seller must provide the above information for that vendor upon request by an authenticated purchaser

For all listings by a high-volume seller, third-party marketplaces must provide a “clear and conspicuous” way for a customer to report suspicious activity electronically and by telephone. 

Finally, third-party marketplaces must implement and maintain reasonable security measures to ensure the data they collect from high-volume vendors is safe. Data collected solely to comply with the INFORM Consumers Act “may not be used for any purpose unless required by law.”

The INFORM Consumers Act provides an exception for high-volume third-party online sellers that don’t have a business address or have a combined business/residential address.

These vendors must provide the country and state (if applicable) in which they reside, but they don’t need to provide the street address.

Third-party marketplaces will need to let consumers know there’s no business address available and provide a way for consumers to contact the seller, either by phone, email, or electronic messaging.

Should a marketplace determine a high-volume third-party seller has made a false representation in order to partially disclose their address, and should the seller fail to respond to consumer questions within a reasonable period of time, the online marketplace can suspend sales on the seller’s account. However, the marketplace must give the seller notice of its intent and allow the seller 10 days to respond to such notice.

If a high-volume vendor fails to comply with the new information and reporting requirements, the online marketplace can suspend sales activity on their account. The platform must alert the seller via written or electronic notice and give the vendor up to 10 days to comply. 

Online marketplaces that fail to institute and enforce new information and reporting requirements for high-volume third-party retailers are subject to civil or criminal penalties under the Federal Trade Commission Act. Penalties could reach $50,120 per violation.

Any state attorney general that has reason to believe an online marketplace has failed to comply with the new requirements can bring civil action against the marketplace, as can the Federal Trade Commission itself. 

Why make marketplaces do the heavy lifting? “The nature of our tax structure is such that every tax is almost completely reliant on a business for its collection/remittance,” says Scott Peterson, VP of Government Relations at Avalara. “This legislation takes that concept one step further and turns businesses into law enforcement agents. You want to buy a fire truck? Make a business collect your sales tax. You want to stop people from selling counterfeit goods? Impose an obligation on a third party.”

Whether the INFORM Consumers Act will decrease the number of counterfeit and stolen goods sold by third-party merchants on marketplace platforms remains to be seen, but something had to be done. In 2018, the Government Accountability Office reported that 20 of 47 items purchased from third-party merchants that sell products on “popular consumer websites” were counterfeit.

Prior to enactment of the INFORM Consumers Act, Arkansas, California, Oklahoma, and several other states passed laws requiring marketplace facilitators to help police sales of stolen goods by monitoring and vetting high-volume marketplace sellers. The INFORM Consumers Act supersedes such laws but allows state attorneys general and other officials authorized by the state to enforce the new law. The Federal Trade Commission is also enforcing INFORM Consumers Act.

On June 20, 2023, the Federal Trade Commission announced that it sent letters to 50 online marketplaces notifying them of their obligation to comply with the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act as soon as it took effect on June 27, 2023. “The Commission will enforce the Act to the fullest extent possible and will collaborate with our state partners to hold online marketplaces accountable,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.

The INFORM Consumers Act has the support of many major marketplace platforms, including companies like Amazon, eBay, Etsy, and Walmart:

• Amazon: “Establishing a standard, nationally consistent expectation for the entire industry is a positive development that will help ensure small businesses selling products online do not have to manage an unworkable patchwork of state-level regulations.”
• eBay: “We’re grateful to lawmakers who partnered with eBay to align on one federal compliance standard that prevents burdensome information collection requirements. We’re committed to ensuring a trusted and safe marketplace for buyers and sellers, and we’ll continue to advocate on your behalf.”
• Etsy: “As a marketplace that connects millions of creative entrepreneurs to tens of millions of shoppers around the world, we know that building trust among our users and operating with transparency is paramount. We firmly believe we have a responsibility when it comes to protecting our community from bad actors.” Etsy pledged its support for the INFORM Act.
• Walmart: “We advocated for the INFORM Consumers Act, which directs digital marketplaces to verify high-volume third-party sellers.”

These companies prefer a national standard to varying state requirements.

If you’re a marketplace striving to comply with compliance regulations, including sales tax obligations, Avalara can help. Find out more about our online marketplace software.

This blog has been updated; it originally published January 2023.