INFORM Consumers Act – Is Your Company Ready for June 27 Compliance?

By: Michelle Cohen

On June 27, 2023, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”, or “Act”) becomes effective, imposing new obligations on online marketplaces like Amazon, eBay, and Etsy.  Specifically, the INFORM Consumers Act requires online marketplaces to verify and disclose high-volume third-party sellers’ identities. Congress enacted the law in December 2022 to protect consumers from counterfeit, unsafe, and stolen goods, and to allow consumers easier methods for reporting suspicious activities. The Federal Trade Commission (the “FTC”) has already put 50 companies on notice that it expects compliance as of June 27, 2023, and significant penalties may result from noncompliance with these new requirements.

Who is Covered?

In summary, the law defines “online marketplaces” as a person or entity operating “a consumer-directed electronically based or accessed platform” that allows third party sellers to engage in the sale, purchase, payment, storage, shipping or delivery of a consumer product in the U.S., and “has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.” (Website terms of service presumably qualify as a contractual relationship). “Consumer products” follows a standard definition used under several other laws, meaning products normally used for personal, family, or household purposes (versus business items).

The ”high-volume third party sellers” from which online marketplaces need to collect information are sellers in an online marketplace that, in any continuous 12-month period, during the past 24 months, has had on that platform 200 or more separate sales or transactions of new or unused consumer products, and $5,000 or more in gross revenues. In determining whether a seller meets these thresholds, the focus is on sales on the particular online marketplace. Thus, a seller could meet the threshold on one marketplace (e.g., Amazon), but not meet the threshold on another marketplace (e.g., eBay).

What is an Online Marketplace Required to Do?

First, online marketplaces must conduct due diligence of covered sellers. This requires collecting the following (within 10 days of a business meeting the definition of “high-volume third party seller”):

• Bank account number (if no bank account, the name of the payee for payments issued by the marketplace to the seller)
• Contact information
• Business ID/tax ID number
• Working telephone and email address
• Copy of valid government-issued identification for an individual acting on behalf of the seller or a government-issued record or tax document that includes the business name and physical address of the seller

The online marketplace then has 10 days to verify this information. In fact, some online marketplaces have already put these requirements in place. The Act does not specify requirements for verification. (The FTC has authority to issue regulations under the Act that could set mandates).

Online marketplaces must obtain an annual certification of this information from each covered seller. They are also required to suspend high-volume third party sellers that do not provide the required information within the required 10 day period. As an example, Amazon requires the data listed above, and warns that if a covered seller has not provided its information, Amazon can deactivate its account and hold disbursements (https://sellercentral.amazon.com/seller-forums/discussions/t/3f397093-fc95-478f-835b-8f80752600e8). eBay has similar requirements (https://www.ebay.com/sellercenter/resources/inform-consumers-act).

What are the Special Requirements for High Volume Sellers?

For high volume sellers of $20,000 or more in annual gross revenues, certain information must be provided to the online marketplace so it can be disclosed to consumers in a clear and conspicuous manner.  This means the disclosure should be made on the product listing page or in the order confirmation message  (or similar document) issued to the consumer following the purchase. The information must include:

• Seller’s full name
• Physical address
• Contact information of seller that allows “direct, unhindered communication” with the seller, including a working phone number, email address, or other means of direct electronic messaging
• If the seller used a different business to supply the product, the online marketplace must (at the consumer’s request), provide the name, address, and contact information for that business

What are the Exemptions?

The Act contains several exemptions, including for those businesses that make their name, business address, and contact information available to the general public, provided they have contractual arrangements with an online marketplace to manufacture, distribute, wholesale, or fulfill shipments of consumer products – and, they provide the marketplace with identifying information and the marketplace verified that information. The law’s data collection and verification requirements do not apply to the online marketplace itself

Who Enforces the New Law?

The Federal Trade Commission and state attorneys general enforce the law.  The FTC recently sent to 50 (unnamed) online marketplaces, warning them that noncompliance with the Act can be treated as an FTC rule violation, resulting in civil penalties of $50,120 per violation. Other actions by the FTC and state authorities can include enjoining further violations, and states may obtain damages and restitution for state residents. The Act preempts any inconsistent state law.

The FTC directs consumers and others to report suspected violations of the Act to www.reportfrraud.ft.gov.  The Act also authorizes the FTC to issue implementing regulations (although, to date, the agency has not undertaken a proceeding).

How is Personal and Business Data Protected?

                The Act requires online marketplaces to “implement and maintain reasonable security procedures and practices “ to protect the information that marketplaces are now required to collect. This includes having administrative, physical, and technical safeguards in place. The data collected to comply with the new law may not be used for other purposes, unless required by law.  This provision provides the FTC with specific, statutory data security authority in the event an online marketplace has a data breach incident.

What Can We Expect to see from the FTC

                The FTC will be monitoring online marketplaces’ compliance with the new law. As marketplaces have had several months to prepare for the June 27 effective date, we expect to see the agency take action against noncomplying entities within the first six to eight months. Online marketplaces must ensure they are collecting and verifying the required information. In addition, while not expressly required, it would be prudent to monitor and remain vigilant over repeated customers complaints concerning non-responsive, or “phantom” sellers. The FTC and state attorney generals will be monitoring online marketplaces to ensure they are collecting, verifying and suspending seller accounts that do not meet the INFORM Act’s requirements.