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When Congress passed a bipartisan $1.7 trillion spending bill, they also included a provision that will affect online retailers and sellers. The INFORM Consumers Act is intended to deter counterfeit, stolen, or harmful products from being sold online. Find out what the INFORM Consumers Act is, what problem it attempts to solve, and what online retailers can expect in 2023 and going forward.

INFORM Consumers Act

Under the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act), large marketplaces, like Amazon, Etsy, and eBay will be required to promptly collect information such as identification verification, banking, and tax information for any high-volume third-party seller.

High-volume third-party sellers are those that conduct 200 or more transactions that result in $5,000 or more during a 12-month continuous

Marketplaces will be required to collect sellers’

  • Bank Account Numbers
  • Government-issued ID
  • Tax ID numbers
  • Contact Information

Marketplaces will be required to collect and verify this information and then certify any changes during annual compliance process. If sellers fail to provide this information to the marketplace, the marketplace will be required to suspend the seller until they comply and provide the required information.

Marketplaces will also be required to make sellers’ names and contact information available to consumers through the sellers’ product listings. Finally, marketplaces will also be required to provide consumers with a method to report, electronically and by telephone, any suspicious activity on the marketplace.

The Federal Trade Commission will have the power to enforce the INFORM Consumers Act as unfair or deceptive acts. State Attorney Generals can also bring civil actions against marketplaces in federal courts to enforce this law.

The INFORM Consumers Act had a weird (at least in today’s political climate) mix of bipartisan support and brick-and-mortar and online retailers. Amazon, Etsy, and eBay all supported the Act, as well as many major retailers, manufacturers, small business groups, National Retail Federation, Fraternal Order of Police, and the U.S. Chamber of Commerce.

The INFORM Consumers Act can be compared to the Know Your Customer regulations for financial institutions, where banks and credit unions are required to obtain government ID, tax, and address information for those hold financial accounts.

The Problem is INFORM Consumers Trying to Fix

For years now, online retailers and consumers have dealt with “nefarious” retailers. This could be from online retailers selling stolen or counterfeit goods. It could also be those that are running fake review scams.

The National Retail Federation estimated that retail shrink for brick-and-mortar stores contributed to $94.5 billion in loses in 2021, much of that by organized retail crime groups that then sold the stolen merchandise online. Add in such situations as factory workers taking product for their own sale and other unauthorized resellers, there has been a major problem for traditional retailers.

For consumers, the problem is compounded. We buy products from Amazon, thinking the products are legitimate, only to find that the sellers weren’t authorized and we cannot get support for the products we buy. They are often knock-offs, seconds, or otherwise illegitimate use of copyrights and trademarks.

That’s if the product ever arrived. But how often have you bought something from a site only to find that the product description was completely wrong, the product shipped was the wrong product, or it just never shipped? Sure, you could go to Amazon or the marketplace for a refund, but they might fight for a return (of a product that never arrived) or argue with you. It became a large hassle for many consumers.

Revolving Scam Retailers

As soon as one scammy retail shop was shut down, they could quickly open up under a new name and continue doing business. There was nothing to stop them and many marketplaces were disincentivized to do anything about these stores.

I know I have a personal preference not to buy from sellers with few reviews or product sales. But that’s often hard to see, especially when shopping on mobile or if it is buried in the marketplace site. Thus, you’d review on product reviews, but we have all heard the stories of fake review scams.

In the vein of “sunshine is the best disinfectant,” the INFORM Consumers Act will help legit and reputable manufacturers and retailers by shining the light on the tactics of these bad retailers. And now marketplaces, like Amazon, will be able to be held accountable.

To a certain extent, we will be able to see who the seller is. When they shut down and open up a new shop, it will be easier for the marketplaces to track where they go (because of the bank, tax, and ID information collected) next. It’ll be easier for consumers to see who they are buying from.

Not a Magic Bullet

By no means do I expect the INFORM Consumers Act to solve all the problems of scammy retailers on large marketplaces. But this is a step in the right direction. Because now we will have some transparency.

Until now, consumers and other retailers were at a great disadvantage because we didn’t have the information necessary to judge who we were buying from. We only knew that they were backed by Amazon (or other marketplace) when we were not happy with the product we received (if we received it at all).

But with the international bent to e-commerce, there will be difficulty for marketplaces to implement many of these requirements and definitely the certification process. Yes, I’m thinking about the Chinese shops that pop up daily on Amazon and other marketplaces.

Even domestically, companies can hide behind LLCs and other corporate entities. And the marketplaces do not have to collect and verify the information until the seller hits $5,000 and 200 transactions. Which doesn’t help the revolving door and new sellers.

Paul Drecksler at Shopifreaks would go one step further than the current INFORM Consumers Act and require marketplaces to collect and verify ALL third-party sellers on their platforms.

International Online Retailer Transparency Efforts

The INFORM Consumers Act is not the first effort on the international scene to require this kind of retailer transparency. Other countries and regionas, like the UK, Europe, Japan, and Mexico, already require marketplaces to disclose address, phone, and email contact information for third-party sellers.

In the European Union, marketplaces have to collect information about traders and non-traders and then warn consumers when they are buying from a non-trader. When buying from a trader, specific consumer protection laws apply that do not apply when buying from a non-trader.

What Retailers Can Expect

The INFORM Consumers Act will become effective 180 days (approximately 6 months) after President Biden signs the spending bill (expected this week). For sake of discussion, let’s just say that around the middle of summer, the law will become effective and marketplaces will be required to comply.

In the upcoming six months, marketplaces will be building out existing systems to collect and then verify the information that you provide. Marketplaces will also likely be sending out emails and other communications about the upcoming requirements to comply.

For most U.S.-based online retailers, not much will change. You already provide much of the required information for tax reporting purposes (yep, that 1099). This will include the legal name, tax ID number, and address.

However, you likely have not had to produce a copy of a government issued ID. As the owner, you’ll likely be required to provide a copy/scan/picture of a drivers license, passport, or similar government issued ID.

If you don’t have a physical address, because you are work-from-home, then you may want to certify such. This will allow the marketplace to limit the address information that they disclose to consumers so that your personal residence address isn’t disclosed.

You will also have to re-verify or re-certify the pertinent contact, banking, and tax information every year. Failure to confirm that the information is up-to-date should lead you to getting suspended from the platform, at least until the information is again confirmed.

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