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What is the INFORM Consumers Act? And How It Impacts Your Marketplace

The INFORM Consumers Act empowers the Federal Trade Commission (FTC) to protect consumers against deceptive practices commonly executed by high-volume third-party sellers on online marketplaces. We’ll delve into what the act entails and what marketplaces must do to maintain compliance. Then contact us for a quick strategy session.

What Is the INFORM Consumers Act?

The INFORM Consumers Act, also known as the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, went into effect in the United States (US) on June 27, 2023. The purpose of the act is to establish requirements for online and/or e-commerce marketplaces to collect, verify, and disclose specific information regarding high-volume third-party sellers. This article delves into the details of the INFORM Consumers Act — exploring what the act does, and how it impacts online marketplaces.

The INFORM Consumers Act Requires Marketplaces to Collect and Verify Information on Third-party High-volume Sellers

The act aims to protect consumers who shop on online marketplaces. It requires these platforms to collect and verify information from high-volume third-party sellers.

This information includes but is not exclusively limited to:

  • Bank account details
  • Contact information
  • Tax identification numbers
  • Current working email addresses
  • Phone numbers

How the INFORM Consumers Act Defines Online Marketplaces

Online marketplaces are defined as, “any person or entity that operates an 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; and
  • (B) is used by one or more third party sellers for such purposes.”

These platforms must have a contractual or similar relationship with consumers governing their use.

How the INFORM Consumers Act Defines High-volume Third-party Sellers

High-volume third-party sellers are defined 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.” These sellers are further defined as participants in an online marketplace who have conducted at least 200 transactions resulting in a total revenue of at least $5,000 during a continuous 12-month period.

The INFORM Consumers Act Requires Marketplaces to Disclose Information on Third-party High-volume Sellers

The act mandates that online marketplaces disclose some of the information they collected and verified on high-volume third party sellers to consumers. This information must be clearly linked on product listings or through a link in close proximity to the physical product.

This includes:

  • “The full name of the seller;
  • The physical address of the seller;
  • Whether the seller also engages in the manufacturing, importing, or reselling of consumer products; and
  • Contact information for the seller;
  • The identification of any seller that supplies the consumer product to the consumer upon purchase, if such seller is different than the high-volume third party seller listed on the product listing prior to purchase.”

Exceptions and the Limitations of those Exceptions

Under certain circumstances, online marketplaces may provide partial disclosure of seller information upon the seller's request. For example, in the act it states, “there is no business address available for the seller…consumer inquiries should be submitted to the seller by phone, email, or other means of electronic messaging provided to such seller by the online marketplace.”
If a seller meeting the partial disclosure exceptions “has not provided responsive answers within a reasonable time frame to consumer inquiries,” the online marketplace is required to “suspend the selling privileges” of the seller.

Reporting Mechanism

The act requires online marketplaces to provide a reporting mechanism for consumers “on the product listing” to report suspicious marketplace activity. This mechanism should allow for electronic and telephonic reporting, enabling consumers to alert the platform about any concerning behavior or issues.

The Enforcement of the INFORM Consumers Act is Backed by the Federal Trade Commission Act

To ensure compliance, the penalties and privileges provided in the Federal Trade Commission Act are applicable to violations of the INFORM Consumers Act. Furthermore, the INFORM Consumers Act outlines measures for enforcement and penalties for non-compliance. While the FTC is primarily responsible for enforcing the act and addressing violations, state attorneys general are also empowered to bring civil actions in any appropriate district court to enforce the act.

Penalties and Privileges

Noncompliant online marketplaces may face civil enforcement penalties and civil penalties of up to $50,120 per violation.

Suspension of Sales Activity

If a high-volume third-party seller fails to provide the required information, the online marketplace must suspend future sales activity until compliance is achieved. The seller is given an opportunity to provide or disclose the necessary information within ten days of receiving written or electronic notice from the marketplace.

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Contact us for a quick strategy session.