The requirements of the INFORM Consumers Act went into effect on June 27, 2023. The following includes need-to-know information for sellers, businesses that serve as an online platform for third-party sellers and customers purchasing goods on these marketplaces.
By way of background, on December 29, 2022, Congress passed H.R. 2617, the Consolidated Appropriations Act, 2023, the omnibus spending bill funding the federal government. The bill included the “Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act,” otherwise known as the INFORM Consumers Act. The act is intended to combat the online sale of stolen, counterfeit and dangerous products. It requires online marketplaces that serve as a platform for third-party sellers to collect, verify and disclose certain information from high-volume third-party sellers; failing to do so carries steep consequences.
WHO IS A HIGH-VOLUME THIRD-PARTY SELLER?
The INFORM Consumers Act defines a high-volume third-party seller as a participant in an online marketplace that conducts at least 200 discrete sales or transactions of new or unused products, resulting in at least $5,000 in total revenues during any continuous 12-month period over the previous 24 months.
RESPONSIBILITIES FOR ONLINE MARKETPLACES
The INFORM Consumers Act places much of the responsibility on the online marketplaces on which high-volume third-party sellers sell their consumer goods. However, many of those responsibilities impose requirements on sellers themselves. Online marketplaces are defined as any person or entity that operates a consumer-directed electronically based or accessed platform that is used by one or more third-party seller(s) and facilitates those sellers to engage in the sale of consumer goods. The requirements for these online marketplaces include:
Data collection. Within 10 days of a seller qualifying as a high-volume third-party seller, the online marketplace must require the seller to provide their (1) bank account number or name of the person paid by the marketplace for the transactions, (2) the contact information for the seller (if an individual, their name; if a business, its name, physical address, and government-issued record or tax document), (3) tax ID, and (4) working email and phone number. If the seller does not provide this information within 10 days, the online marketplace must suspend the seller.
Data verification.Within 10 days of receipt of the above information, the online marketplace must verify the information. The act provides that government-issued tax documents are presumptively verified, but it does not provide for such presumptions for all other documentation and information.
Data security.Marketplaces must implement reasonable security procedures and practices to protect the data the act requires them to collect and maintain. Furthermore, marketplaces cannot use the data collected for purposes of compliance with the act for any other purposes other than those required by the act.
Ongoing compliance.At least annually, the online marketplace must provide notice to high-volume third-party sellers that such sellers have a requirement to keep the above information accurate. The online marketplaces then have 10 days to certify that the high-volume third-party sellers provided changes to their required information disclosures or that there have been no new changes. If the seller doesn’t provide the certification within 10 days, the online marketplace must suspend the seller.
Information disclosures to consumers for large sellers.For high-volume third-party sellers that have a gross revenue of at least $20,000 on an online marketplace, that marketplace must provide to consumers the seller’s full name, physical address and contact information (a current working phone number, email address or other means of direct electronic messaging). Exceptions exist where the address of the seller is residential, in which case the marketplace may disclose only the state and country of residence of the seller. Additionally, for sellers with at least $20,000 of revenue, the marketplace must disclose whether the seller used a different seller to supply the consumer the product upon purchase, and, upon request by the purchaser, must provide this other seller’s full name, physical address and contact information.
Consumer reporting. Marketplaces must incorporate a “clear and conspicuous” reporting mechanism on each product listing posted by a high-volume third-party seller.
ENFORCEMENT OF THE INFORM CONSUMERS ACT
The INFORM Consumers Act has two methods of enforcement. These enforcement mechanisms are potent and present substantial liability for online marketplaces and third-party sellers that violate the act.
First, the act treats violations as unfair and deceptive trade practices under the Federal Trade Commission (FTC) Act section 18(a)(1)(B). This means that each violation is subject to, among other things, a civil penalty of $46,517 per violation in an enforcement action brought by the FTC. Second, the act permits state attorneys general to bring civil actions to enjoin further violations, enforce compliance, obtain civil penalties, obtain state law remedies, and obtain compensation and damages on behalf of state residents.
These consequences make it imperative for all affected parties to ensure they understand and implement these new requirements. If you have additional questions about the INFORM Consumers Act, please contact your regular McDermott lawyer or one of the authors.
Royce Brosseau, a summer associate in the Washington, DC, office, also contributed to this article.