The landscape of online trade is continually shifting, as evidenced by the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, also known as the “INFORM Consumers Act” (ICA), which became effective on June 27th, 2023.
The INFORM Consumers Act governs online marketplaces, such as Amazon, eBay, and Walmart, that allow third-party sellers to offer unused consumer products for sale to consumers. The Act is intended to protect consumers from counterfeit, unsafe, and stolen goods by requiring online marketplaces to verify covered sellers’ identities and making it easier for consumers to report suspicious marketplace activity.
What is an Online Marketplace?
The law defines the term "online marketplace" as any individual or organization that manages a digitally based platform, accessible to consumers, that incorporates the following characteristics:
- The platform offers features that enable or facilitate third-party sellers to participate in activities related to the sale, purchase, payment, storage, shipping, or delivery of consumer products within the United States.
- The platform is utilized by one or more third-party sellers for the aforementioned purposes.
- The platform maintains a contractual or similar relationship with consumers that dictates their use of the platform for the purchase of consumer products.
Who is Considered a High-Volume Seller under the INFORM Consumers Act
With some exclusions, the 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.” A “high-volume third party seller” is defined as a third party seller who, “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.”
What the INFORMED Consumers Act Requires
In brief, the INFORM Consumers Act mandates that online marketplaces gather and verify high-volume sellers’ bank accounts, tax ID number, and contact details, and to disclose certain information to consumers, albeit with certain exemptions in place. It also requires online marketplaces to suspend sellers who either fail to provide the necessary information or who supply false data.
Additionally, the Act mandates that online marketplaces offer consumers a system to report any suspicious activities that occur in connection with a seller’s operations on the platform.
Penalty for Violations of the INFORM Consumers Act
Any online marketplace hosting "high-volume third-party sellers" must adhere to the INFORM Consumers Act's requirements within 10 days following their classification as a high-volume third-party seller on the respective platform. Failure to comply with the Inform Consumers Act can result in stiff civil penalties for online marketplaces, as high as $50,120 per violation.
The INFORM Consumers Act represents a critically important and long overdue change in the way online marketplaces will operate, and its enforcement will be a top priority for the Federal Trade Commission (FTC), which recently dispatched letters to fifty online marketplaces nationwide, drawing attention to their obligation to adhere to the new legislation. Online sellers covered by the new law can soon expect to hear from the various marketplaces in which they participate.