On December 29, 2022, Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”). This law is a last-minute addition to the Consolidated Appropriations Act of 2023, an omnibus bill that authorizes federal spending for the coming year.
The INFORM Consumers Act applies to online marketplaces – broadly defined to include consumer-directed platforms that facilitate or enable third-party sellers to engage in the sale, purchase, payment, storage, shipping, and delivery of a consumer product. The law requires these marketplaces to collect, verify and provide buyers with certain identification information for what are referred to as ‘high-volume third-party sellers,’ or sellers with more than 200 transactions and $5,000 in revenue over a 12-month period. The law also requires marketplaces to provide buyers with certain product safety information, including recalls, safety warnings and other consumer protection notices.
In addition, the Act provides consumers with a private right of action to enforce its provisions. In other words, consumers can take civil action against an online marketplace that doesn't comply with the requirements of the law. If a court finds an online marketplace has violated the law, it may award damages and other relief, including injunctions and litigation costs.
New Consumer Protections
This legislation is viewed as a significant step forward in consumer protection and transparency for marketplaces. By requiring marketplaces to collect and provide certain identification information for high-volume third-party sellers, and provide buyers with information on product safety, the law helps consumers to be better informed about the products they buy online. Ultimately, the Act is designed to protect buyers from unfair or deceptive practices by third-party sellers on marketplaces, while also providing buyers with necessary information about a product’s safety and authenticity. To ensure compliance, the law requires marketplaces to establish and enforce rules on the conduct of third-party sellers.
Downsides of the New Legislation
Despite its potential to protect consumers from fraudulent or dangerous goods and aid law enforcement in their efforts, the INFORM Consumers Act will lead to an increase in transaction fees for both sellers and buyers, as marketplaces will likely pass on the cost of collecting and verifying seller information to their users. Additionally, the bill may lead to a decrease in seller anonymity, as high-volume sellers with an aggregate total of $20,000 in annual gross revenues must disclose their name, physical address, and contact information to consumers. This could lead to an increase in cyber-security risks for sellers and buyers, as this information could be used to target them. Finally, while the bill attempts to target bad actors, it may also lead to legitimate businesses being targeted by law enforcement, as these businesses may be caught up in the law's enforcement mechanisms even if they are not violating the law.
Enforcement of the INFORM Consumer Act
The Act grants the Federal Trade Commission (FTC) the authority to enforce the provisions of the law and provides civil penalties for violations of up to $40,000 per violation. The FTC is also authorized to issue regulations on the enforcement of the INFORM Consumers Act.
In addition, state attorneys general have the right to take civil action against online marketplaces whose non-compliance with the law affects residents of their states. These marketplaces must implement policies, procedures and controls to comply with the requirements of the INFORM Consumers Act by June 27, 2023, the date the requirements come into force.
In order to comply with this act, online marketplaces should take the following steps:
Clear Product Details: Clearly state all pertinent details about products or services on the marketplace. This should include pricing, location, delivery information, warranties, and other important details.
Return and Refund Policies: Make sure that the return and refund policies are clearly stated on the marketplace. Consumers should be aware of their rights to return or exchange a product that does not meet their needs.
Purchase as Advertised: Ensure that products or services advertised on the site are available for purchase. Consumers should be able to easily purchase the products or services that are being advertised.
Customer Service: Ensure that all customer service inquiries are addressed promptly and accurately. Consumers should be able to contact the online marketplace if they have any questions or concerns about a product or service.
Accurate Product Descriptions: Require sellers to provide clear and accurate descriptions of their products or services. This should include all important details, such as measurements, ingredients, and health or safety information.
The INFORM Consumers Act is an important piece of legislation that will help protect consumers who use online marketplaces. It requires marketplaces to verify the identity of high-volume third-party sellers and provide buyers with certain information to protect against fraudulent activity. The Act also provides state attorneys general with the power to take legal action against online marketplaces for noncompliance, ensuring that consumers’ rights and safety are protected.
By implementing the INFORM Consumers Act, marketplaces can create a safer environment for buyers and sellers, which encourages ethical business practices and helps build trust in marketplaces. If you're interested in learning more or obtaining legal counsel on this new legislation, please email firstname.lastname@example.org.