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INFORM Consumers Act Now Requires Online Marketplaces to Protect Consumers
Individuals or businesses that operate online marketplaces should be aware of a new law that went into effect Jun 27, 2023. The “Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act” (or “INFORM Consumers Act”, for short), was passed in December 2022 with bipartisan support, and it places various requirements upon online marketplaces designed to deter criminals who may use online marketplaces to sell counterfeit, stolen, defective, and dangerous products.
The INFORM Consumers Act gives the FTC rulemaking authority, charges the FTC, state attorneys general (AGs) and “other state officials” with enforcement, and authorizes substantial civil penalties of up to $50,120 per violation for noncompliance.
In letters sent out by the FTC to more than 50 online marketplaces nationwide, the FTC notified them of their obligation to comply “on day one”, as soon as the law went into effect on June 27.
What is an “online marketplace” and a “high-volume seller”?
An “online marketplace” is defined (under 15 USC 45f(4)) as “any person or entity that operates a consumer-directed electronically based or accessed platform that -
(A) includes features that allow for, facilitate, or enable third party sellers to engage in the sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States;
(B) is used by one or more third party sellers for such purposes; and
(C) has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.
In its business guide, the FTC explains that the law takes the meaning of “consumer product” from the Magnuson-Moss Act, which defines it as “tangible personal property for sale and that is normally used for personal, family or household purposes.” The online marketplace also must have a contractual or similar relationship with consumers governing their use of the platform to buy products. Many companies that meet the definition of “online marketplace” are national names, but small niche platforms with “high-volume third party sellers” are covered, too.
A “high volume third party seller” is defined as a participant on the platform who is a third party seller and, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consume products and an aggregate total of $5,000 or more in gross revenues.
What does the Act require?
Generally, the Act requires the following:
- Privacy and Security Safeguards: To protect the information they’re required to collect from unauthorized use, disclosure, access, destruction, or modification, the law requires that online marketplaces “implement and maintain reasonable security procedures and practices.” That includes putting administrative, physical, and technical safeguards in place that are appropriate to the nature of the data and the purposes for which the data is used.
- Collection: Once a person or business meets the definition of “high-volume third party seller”, the marketplace has 10 days to collect certain information from the seller, including bank account information, contact information, and a Tax ID number.
- Verification: Once the information is collected, online marketplaces have 10 days to verify the information they get from high-volume third party sellers. Although the law doesn’t list specific verification steps, the methods the online marketplace chooses must enable it “to reliably determine that any information and documents provided are valid, corresponding to the seller or an individual acting on the seller’s behalf, not misappropriated, and not falsified.” The law also includes a “presumption of verification” that any information contained in a valid government-issued tax document can be presumed verified as of the date of the document. They also must require sellers to keep their information current and to certify it as accurate or updated it at least once a year.
- Disclosure: For high-volume third party sellers that meet a certain level of sales on a platform, online marketplaces must disclose in the sellers’ product listings or order confirmations specific information about the seller.
- Suspension of non-compliant sellers: Online marketplaces must suspend high-volume third party sellers that don’t provide information the law requires.
- Reporting Mechanism: Online marketplaces must provide on high-volume third party sellers’ product listings a clear way for consumers to report suspicious conduct. Such reporting mechanism must include both an electronic and a telephonic way for consumer to report suspicious activity.
What are the consequences for noncompliance?
Online marketplaces that don’t comply may face FTC law enforcement that could result in civil penalties of $50,120 per violation. The statute also gives enforcement authority to State Attorneys General and “other officials authorized by the State”. They may file an action in federal court to enjoin further law violation, seek civil penalties and other remedies permitted under state law, and obtain damages, restitution, or other compensation for residents of that state.