Written By: Guy Milhalter and Austin Ochoa
The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, also known as the “INFORM Consumers Act”, goes into effect on June 27, 2023.[1]
Under the INFORM Consumers Act, online marketplaces that allow high-volume third party sellers to offer new or unused consumer products for sale to consumers must collect, verify, and disclose certain information about those sellers.
As described by Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, “[t]he INFORM Consumers Act requires online marketplaces to protect consumers from counterfeit, unsafe, and stolen goods by verifying their high-volume third-party sellers’ identities, and making it easier for consumers to report suspicious marketplace activity.”
What is considered an “Online Marketplace”?
An “online marketplace” is defined as a person or entity that operates a consumer-directed electronically based or accessed platform that:
- 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;
- Is used by one or more third party sellers for such purposes; and
- Has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.
Who is considered a “High-Volume Third-Party Seller”?
The INFORM Consumers Act defines a “third party seller” as “any seller, independent of an online marketplace, who sells, offers to sell, or contracts to sell a consumer product in the United States through such online marketplace’s platform.”
However, the definition of a “third party seller” excludes:
- Businesses that operate the online marketplace’s platform; or
- Businesses that
- Made their name, business address, and contact information available to the general public;
- Have a contractual relationship with the marketplace to manufacture, distribute, wholesale, or fulfill shipments of consumer products; and
- Provide the marketplace with identifying information that the marketplace has verified.
This exclusion list means that the collection, verification, and disclosure requirements imposed on online marketplaces by the Act will not apply with respect to third party sellers that have made their information available to the public and have contracted with the online marketplace and have been verified by the online marketplace.
The Act further defines a “high-volume third party seller” as a “participant on an online marketplace’s 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 consumer products and an aggregate total of $5,000 or more in gross revenues.”
For the purpose of calculating the number of sales or gross revenues for the “high-volume” threshold on a given online marketplace, the only sales that count are ones made through that online marketplace and for which payment was processed by the online marketplace, either directly or through its payment processor.
In effect, this means that the requirements imposed on online marketplaces under the Act will only apply to those online marketplaces that have been in existence for twelve months or longer. While the rationale for this exception is not explained in the Act, one might surmise that the drafters of this legislation did not want to further cement the dominance of large incumbent online marketplaces and impose a burdensome barrier of entry to new online marketplaces that compete with those incumbents.
Online Marketplace Compliance Requirements
Any online marketplace that falls under the definition of the Act is required to comply with the following responsibilities:
- Collection: Online marketplaces must collect bank account information, contact information, and a Tax ID number from high-volume third party sellers.
- Verification: Online marketplaces must verify, certify, and keep current the information they get from high-volume third party sellers.
- Disclosure: Online marketplaces must disclose specific information about high-volume third-party sellers in their product listings or order confirmations.
- Suspension of Non-Compliant Sellers: Online marketplaces must suspend high-volume third party sellers that do not provide the required information.
- Reporting Mechanism: Online marketplaces must provide a clear way for consumers to report suspicious conduct.
Collection
An online marketplace must collect the following information about a high-volume third party seller:
- Bank Account Information: The online marketplace must collect the high-volume third party seller’s bank account number, or, if the seller does not have a bank account, the name of the payee for payments the online marketplace issues to the seller. The high-volume third party seller can provide the information directly to the online marketplace, or to a payment processor or other third party that the online marketplace has designated.
- Contact Information:
- If the high-volume third party seller is an individual, the online marketplace must get the person’s name, a working email address, and phone number.
- If the high-volume third party seller is not an individual (a corporation, LLC, etc.), the online marketplace must collect a working email address and phone number and one of the following forms of identification:
- A copy of a valid government-issued identification for an individual acting on behalf of the high-volume third party seller; or
- A copy of a valid government-issued record or a tax document that includes the business name and physical address of the seller.
- Tax ID Information: The online marketplace must collect a high-volume third party seller’s business tax identification number – or if the seller does not have one, a taxpayer identification number.
In addition, online marketplaces must keep information from its high-volume third party sellers current. At least once a year, the marketplace must require its high-volume third party sellers to electronically certify that its information hasn’t changed or provide the marketplace with updated information.
Verification
Once a high-volume third party seller provides its banking account, contact, and tax ID information, online marketplaces have 10 days to verify the information.
The chosen verification method must enable the online marketplace “to reliably determine that any information and documents provided are valid, corresponding to the high-volume third party seller or an individual acting on the seller’s behalf, not misappropriated, and not falsified.”
The Act 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.
Disclosure
If a high-volume third party seller has $20,000 or more in annual gross revenues on a particular online marketplace, then the marketplace must disclose the following information on each of the seller’s product listing pages (including via hyperlink), or in the order confirmation message and in the customer’s account transaction history:
- The seller’s full name, which may include the seller’s business name or the name it uses on the online marketplace;
- The seller’s physical address; and
- Contact information for the seller to allow for the direct, unhindered communication with the seller by users of the marketplace, which must include (i) a working phone number, (ii) a working email address, or (iii) other means of direct electronic messaging.
If the high-volume third party seller uses a different business to supply the product a consumer purchased, then the online marketplace must provide the consumer with the name, address, and contact information for that business upon request.
Exceptions
The following exceptions apply with respect to information an online marketplace must disclose:
- If a high-volume third party seller operates from a residential street address, then the online marketplace must disclose the country and State where the seller resides and inform consumers that there is no business address available and provide consumers with the seller’s phone number, email, or other means of electronic messaging.
- If the listing includes a high-volume third party seller’s physical address for product returns, then the online marketplace may disclose the seller’s return address.
- If the high-volume third party seller’s only phone number is a personal phone, then the online marketplace must provide an email address or other form of electronic messaging where consumers can contact the seller.
Non-Compliance and Reporting Mechanisms
The online marketplace must clearly and conspicuously disclose on the product listing page of any high-volume third party seller a reporting mechanism that allows for a way for consumers to report suspicious activity electronically and by phone.
If a high-volume third-party seller does not provide the required information needed to comply with the Act, then the online marketplace must give the seller written or electronic notice and 10 days to comply. If the high-volume third party seller does not comply, then the marketplace must suspend the seller’s future sales until the seller complies.
Enforcement of the INFORM Consumers Act
A violation of the Act will be considered a violation of an FTC rule. Online marketplaces that fail to comply with the Act may be subject to civil penalties. As provided in the FTC guidance document for compliance with the Act, violations of the Act could result in civil penalties of $50,120 per violation for online marketplaces. The FTC has already demonstrated its intent to vigorously enforce the Act. On June 20th, one week before the Act goes into effect, the FTC sent 50 letters to online marketplaces to notify them of their obligations to comply with the Act.
In addition to enforcement actions by the FTC, the Act also gives enforcement authority to state attorneys general who may file a civil lawsuit in federal court to stop further violations of the Act, seek civil penalties and other remedies allowed by applicable state law, and obtain damages, restitution, or other compensation for residents of their state.
Please contact Guy Milhalter (GMilhalter@PearlCohen.com) or Austin Ochoa (AOchoa@PearlCohen.com) with any questions.
[1] 15 U.S.C. Section 45f (the “INFORM Consumers Act” or the “Act”). All definitions, descriptions, and references to the law in this article refer to the language of the Act.
