New E-Commerce Marketplace Regulations: Online Marketplaces Must Comply with The INFORM Consumers Act by June 27, 2023

In an effort to “combat the online sale of stolen, counterfeit, and dangerous consumer products,” Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”), which was signed into law at the end of 2022. The INFORM Consumers Act mandates transparency with respect to high-volume sellers in online marketplaces, with the primary goal of discouraging marketplaces or other similarly situated platforms from facilitating the sale of counterfeit goods.

Starting on June 27, 2023, online marketplaces must comply with the Act’s information collection and verification requirements for “high-volume third-party sellers,” broadly defined as those sellers who, in any continuous 12-month period during the previous 24 months, have 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.

Each online marketplace must, no later than 10 days after a seller qualifies as a high-volume seller, collect the seller’s:

• bank account number,
• government-issued identification,
• tax identification number, and
• contact information (including name, email and phone number).

Generally, the marketplace must collect this information themselves, but the Act does permit certain information, such as bank account information, to be collected by third parties provided that the marketplace can obtain such information within three business days.

Within 10 days following the collection of this information, the marketplace must:

• affirmatively verify the information (though the information on a valid government-issued tax document may be presumed verified); and
• annually certify with the seller any (or no) changes to such information.

In the event a high-volume third-party seller does not provide this information to the marketplace, the marketplace must suspend the seller on 10 days’ notice.

Furthermore, the Act requires online marketplaces to abide by certain disclosure requirements for high-volume third-party sellers who collect more than $20,000 in annual gross revenues. For sellers meeting this revenue threshold, the marketplace must require the seller to provide the following identification and contact information to buyers on both their product listing and order confirmation message:

• full name,
• physical address (only state and country are required if the seller’s only address is a residential address), and
• either a phone number, email address or other direct messaging handle (no phone number is required if the seller only has a personal phone number).

Additionally, the marketplace must suspend any seller who provides false information to justify a partial disclosure of information under any of the disclosure exceptions above.

Finally, the Act requires that marketplaces incorporate a clear and conspicuous reporting mechanism on each product listing page for each high-volume third-party seller for consumers to report suspicious marketplace activity.

The INFORM Consumers Act may be enforced by state attorneys general and the Federal Trade Commission (FTC), and violations will be treated as an unfair or deceptive act or practice (UDAP) under § 18(a)(1)(B) of the FTC Act. The maximum civil penalty for each UDAP violation in 2023 is $50,120. In other consumer protection areas where the FTC has had the statutory right to impose penalties for violations, the FTC has followed a path of graduated enforcement issuing warnings before instituting penalties and consent judgments. However, on June 20, 2023, the FTC sent letters to 50 online marketplaces nationwide putting them on notice about their responsibilities under the Act and urging them to take steps to fully comply by June 27, 2023. Moreover, the administrative burden of responding to FTC and state administrative subpoenas and other notices poses significant costs and resource expenditures for marketplaces.

Key Takeaways

1. The INFORM Consumers Act broadly defines what platforms constitute “online marketplaces” and requires that such marketplaces promptly collect and verify information from “high-volume sellers.” To comply, marketplaces must thoughtfully craft and implement systems both for identifying these sellers and requiring them to comply with the Act’s requirements, which may involve significant operational shifts to how marketplaces presently conduct business.
2. To supplement these systems, marketplaces should consider revising their agreements and terms of use governing their relationship with their sellers to incorporate the Act’s requirements.
3. With the letters circulated by the FTC on June 20, 2023, the FTC has indicated that it expects full compliance by marketplaces with the Act.
4. Online marketplaces may face increased risk of criminal and civil penalties, as the information collection and verification required by the Act make marketplaces more aware of potential illicit conduct by third-party sellers on their platforms. Marketplaces should develop procedures designed to comply with this Act to appropriately consider such situations.
5. Implementing any of the above changes in business operations, contractual relationships or product distribution mechanisms could present ancillary impacts on the marketplaces’ compliance and legal outlooks, including the way in which they leverage third-party payment processors and collect and distribute payments for products.