Increased Seller Diligence & Disclosure Requirements for Online Marketplaces
In an effort to better protect consumers and clamp down on online fraud, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Consumers Act) was signed into law in the US, December 2022. Aiming to create a safe and transparent online buying process, the Act stipulates requirements for B2C marketplaces regarding seller diligence and disclosure. Policies, procedures and controls to comply must be implemented by 27 June 2023. As the deadline fast approaches, let’s take a look at what this increased consumer protection means for marketplaces.
Collect and verify seller information
Under the Act, B2C marketplaces will be required to collect, verify and provide buyers with identification information for ‘high-volume third party sellers’. Defined as sellers with more than 200 transactions and $5,000 in revenue over a 12-month period. For reference, 36% of Amazon sellers are making more than $5,000 per month, so the potential number of sellers affected by the new legislation is huge!
Provide seller information to consumers
In addition, for sellers with more than $20,000 in gross annual sales, which as we’ve seen would include more than a third of Amazon sellers, marketplaces will also have to provide contact information to buyers. Required information includes name/company name, physical address and contact information, i.e. phone, email or other electronic means such as a marketplace’s messaging system.
Marketplaces need to consider where these details should appear - either on seller listings’ pages or within order confirmations which would avoid the risk of bypass and purchases being diverted off-platform.
The Act states that only new/unused products are affected so resellers and consumer sellers selling second hand items are exempt.
What about home-based sellers?
Safety and privacy concerns have been raised by sellers using residential addresses and personal contact details. In this case, high-volume third party sellers can apply for exemption and only partial identity information will be disclosed - e.g. email addresses to be used for all consumer contact. Marketplaces, however, need to consider how they will certify sellers for exemption.
Where sellers are found to falsely claim exemption or refuse to provide the necessary information, marketplaces will be required to suspend the account until compliant.
Supply product safety information
Marketplaces will also have to provide buyers with product safety information - including recalls, warnings and other consumer protection notices.
Disclose where drop shipping or online arbitrage is used
Under the Act, anyone selling over $20,000 on any marketplace will have to disclose if they use online arbitrage or drop shipping to fulfil orders. Online arbitrage refers to sellers selling items on one marketplace that they order in advance from other sellers on another platform. Drop shipping relates to sellers listing products that will be shipped to the buyer directly from the manufacturer.
The INFORM Consumers Act could significantly impact such sellers on marketplaces as both these models for sourcing products often lack the necessary documentation.
Reporting mechanism for concerned consumers
In a bid to give increased protection to consumers, marketplaces will also need to provide a mechanism for consumers to report suspected fraud, counterfeit or other unfair/deceptive practices. Such contact details should be provided ‘in a clear and conspicuous manner on the product listing of any high-volume third party’.
What will enforcement look like?
Penalties for non-compliance are high. For each failure of a marketplace to collect, verify or disclose required information, the FTC will have the authority to assess penalties of $46,517 per violation. Additionally, state attorneys general will be permitted to bring civil actions for violations of the Act and could award consumers damages and other relief, such as injunctions and litigation costs.
What does it mean for consumers?
The Act is designed to help consumers be better informed about the safety and authenticity of products they buy online. It intends to “deter the online sale of counterfeit goods by anonymous sellers and prevent organized retail crime rings from stealing items from stores to resell those items in bulk online.” The legislation is seen as a significant improvement in consumer protection and transparency for marketplaces, ensuring consumers’ rights and safety are protected.
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