Attention Online Retailers: Are You INFORMed?
We’re in the heat of August, summer in all its blazing glory, and what better way to sweat than because of new regulations? This is, after all, what being an entrepreneur is all about! That and selling, selling, selling. And if you have an online platform for third-party sellers or you are an online seller, then there may be some juicy regs just for you – swap out that Aperol Spritz with a Congressional Tonic. Mmm, so bitter. (Just kidding: consumer protection is very important.)
As of June 27, 2023, online marketplaces must comply with the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”). Rolls off the tongue, right? I’m sure compliance will be as smooth as that title. Congress signed the INFORM Consumers Act as an effort to overcome sales of “stolen, counterfeit, and dangerous consumer products” in e-commerce marketplaces. Let’s jump in.
Who must comply with the INFORM Consumers Act?
High-volume third party sellers “with an aggregate total of $20,000 or more in annual gross revenues on” an online marketplace (pretty much everyone with a revenue-producing business that sells on Amazon) and online marketplaces, themselves. Both of these terms are defined below.
The Act defines “online marketplace” 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.”
(For my fellow law nerds, the citation is 15 USC 45f.)
Crudely put, if you let third parties engage in commerce on your platform and your platform is consumer-facing or accessible, then you probably have to comply. While Amazon and others like it are going to be the most likely target, small players may also be implicated by the Act.
It is also helpful to ask, who is a “high-volume third party seller”? Excellent question, invisible people in my head.
Generally, the Act defines them as a seller on an online marketplace who generates $5,000 or more in gross revenue in any continuous 12-month period in the past 24 months and has 200 or more distinct sales of new or unused consumer products on that same platform. See the statute for more information on how the sales are calculated and for any exceptions.
Now that we know who these requirements are geared toward, please strap in, because this may be a bumpy ride.
How must online marketplaces comply with the INFORM Consumers Act?
Compliance with the INFORM Consumers Act comes in three parts: collection, verification, and disclosure of high-volume third party seller information.
Under the new Act, online marketplaces will be required to collect the following information from a seller, listed in full under Section (a)(1)(A), no later than 10 days after they qualify as a high-volume third party seller on the platform:
- A bank account number, OR the name of the payee for payments issued by the marketplace to such seller
- Contact information, which varies between individuals and entities like LLCs or corporations
- Tax identification
- A working email and phone number
The marketplace is also required to keep all seller information current, and will have to annually certify the information above with high-volume third party sellers.
Sellers must electronically certify this information within 10 days of the marketplace’s notice for certification, or they are subject to suspension from the platform, pending certification.
Once the marketplace collects this information, they will then have 10 days to verify it – meaning, using a method of the marketplace’s choosing 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.” (15 USC 45f).
Thankfully, per the Act, any information provided via a copy of a valid government-issued tax document is presumed verified as of the document’s date of issuance.
Seller Obligations: Disclosure
So far, the online marketplace is required to collect and verify certain information from high-volume third party sellers. From that larger pool, though, only some sellers will be required to disclose key information under the Act’s disclosure requirements.
Specifically, high-volume third party sellers, “with an aggregate total of $20,000 or more in annual gross revenues on such online marketplace,” will be required to provide the information below (under Section (b)(1)(B) of the Act) to the online marketplace:
- The identity of the high-volume third party seller, including their full name
- Their physical address
- Their contact information for the seller, to allow for the “direct, unhindered communication” by users of the online marketplace, including:
- A current working phone number
- A current working email address
- Or, other means of direct electronic messaging
- And, whether the seller used a different seller to supply the consumer product to the consumer upon purchase, as well as (potentially) their business’ information
The marketplace is then required to compel the seller to disclose the above information to consumers in a clear and conspicuous manner, either on the product listing page (via hyperlink), or in the order confirmation after the purchase is finalized and in the consumer’s account transaction history.
The Act also allows for the marketplace to provide for partial disclosure in instances where, for example, the seller certifies that they only have a residential street address.
Among the many requirements brought about by the Act, online marketplaces must also give consumers the opportunity to report suspicious marketplace activity on the product listing of any high-volume third party seller.
Penalties for not complying with the INFORM Consumers Act
If you are an online marketplace or high-volume third party seller, compliance with the INFORM Act is paramount. Per the Act’s enforcement provisions, violations will be treated as an unfair and deceptive act or practice, to be enforced by the Federal Trade Commission. According to the FTC’s website, penalties could be as steep as $50,120 per violation for online marketplaces.
Additionally, state attorneys general are empowered by the Act to bring a civil action in federal district court to enjoin existing violations, enforce compliance, and obtain civil penalties, damages, or other remedies or compensation.
In short – there is a lot at stake if you fail to follow these new regulations.
How do I know that my business is compliant?
After reading all of this, you may have more questions than answers. Trust us – we understand completely. Whether you are an online marketplace or a seller, Full Circle Business Law can guide you through compliance with the INFORM Consumers Act, so you can avoid the headache without interrupting your business and you can continue pursuing your entrepreneurial dreams.
Contact us today for more information.
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