INFORMing Customers: A New Retail Requirement

To help retail businesses and online marketplaces better understand the requirements of these laws, we provide more information regarding their application and compliance requirements.

What’s the News?

State and federal laws are being developed to require online marketplaces to collect, verify and disclose information about certain high-volume third-party sellers that transact on their marketplace. This means that businesses selling third-party goods and services now have an added obligation to collect and verify additional information to help deter counterfeiting and other criminal activity.

Below, we provide some additional background on the federal Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the federal “INFORM Act” or the “Act”), which took effect June 27, 2023. While there are also state INFORM Acts, the federal law sets the bar with the strictest requirements, though fines can be assessed at both federal and state levels.

Who Must Comply?

As noted, the federal Act primarily applies to “online marketplaces,” which are defined as any person or entity that operates a consumer-directed electronically based or accessed platform that includes features used by one or more third-party sellers for purposes of selling, purchasing, storing, shipping and/or delivering consumer products in the United States. To qualify as an “online marketplace,” an entity must also have a contractual or similar relationship with the consumers that controls the ways whereby the platform may be used to purchase consumer products.[1]

In addition to the marketplace, third parties selling on such marketplaces should be aware of the Act’s requirements. Notably, “high-volume third-party sellers” must provide certain information to these marketplaces to meet the Act’s disclosure requirements. The Act defines “high-volume third-party sellers” as those who, in any continuous 12-month period during the prior 24 months, had 200 or more discrete sales or transactions of new or unused consumer products with an aggregate total of $5,000 or more in gross revenues.[2] A “consumer product,” for purposes of the Act, follows the Magnuson-Moss Act definition to include tangible items for personal, family or household purposes, along with items meant to be installed or attached to such tangible items.[3]

With the enactment of the federal Act, these platforms and high-volume third-party sellers must prepare themselves for compliance.

What are States Doing?

In addition to the federal Act, six states (Arkansas, California, Georgia, Illinois, Oklahoma and Pennsylvania) have enacted their own INFORM Acts. New York has similar legislation pending. That said, the federal Act preempts state laws to the extent they are inconsistent. At this stage, none of the state laws are more restrictive than the federal Act, and thus the federal Act is the primary law to consider.

Compliance Requirements

Collect, verify and disclose.
To comply with the Act, online marketplaces must collect the below information from a high-volume seller as soon as the seller reaches the point of selling a total of $20,000 or more on the marketplace:

• The full name of the seller, including in some cases the name of the seller’s company, or the name the seller uses when operating on the online marketplace;
• The seller’s physical address;
• The seller’s contact information, including a current working phone number and email address or other means of direct electronic messaging to allow for communication between high-volume third-party sellers and users of the online marketplace;
• An indication of whether the high-volume third-party seller engaged a separate entity in supplying consumer products to consumers upon purchase; and
• At the request of an authenticated purchaser, as applicable, the high-volume third-party seller must provide consumers with contact information of separate or additional entities that played a role in supplying purchasers with consumer products.[4]

Beyond collection, the Act also requires verification that the seller is providing valid information. While information contained in government-issued tax documents is presumptively verified,[5] online marketplaces should implement additional measures to confirm validity of other collected seller information within 10 days of collection,[6] and to be certain that the seller is operating lawfully and legitimately.

Disclosure is key.
There are also disclosure requirements that apply to the collected information. Namely, the marketplace must disclose the seller’s name and contact information such as their phone number, email and mailing address. In turn, online marketplaces must disclose to consumers on the product listing of any high-volume third-party seller a reporting mechanism that allows for electronic and telephonic reporting of suspicious marketplace activity to the online marketplace in a clear and conspicuous manner.[7]

Disclosure exceptions.
Generally, an online marketplace – upon request from a high-volume third-party seller – may provide only partial disclosures of the above. For instance, if a seller has no business address, more limited information can be provided to avoid revealing a residential address on the platform. Similar accommodations may be made for phone numbers and the like.

These exceptions, however, do not apply if an online marketplace becomes aware that a high-volume third-party seller made false representations to the online marketplace to gain eligibility to make only partial disclosures.[8] Also, if a seller is unresponsive to consumer requests, marketplaces must require responsiveness and/or suspend offending sellers from the marketplace.[9]

Non-Compliance Penalties

Violations of the Act are considered an unfair and deceptive practice under state consumer protection laws and Section 5 of the Federal Trade Commission (“FTC”) Act. State attorneys general and any other authorized state officers may bring actions under the federal Act and/or an applicable state law. Violations of the Act may lead to FTC enforcement actions resulting in civil penalties of $50,120 per violation. State INFORM Act penalties range from fines of $1,000 per violation[10] to fines of $10,000 per violation, reasonable attorney’s fees and/or preliminary or permanent injunctions.[11] However, individual consumers, both under the Act and the state law equivalents, do not have standing to bring civil actions.

In preparation for enforcement, the FTC sent letters to 50 online marketplaces nationwide notifying them of their compliance obligations under the Act. Additionally, the FTC developed business education materials summarizing how online marketplaces can comply with the Act. Businesses are encouraged to review the Act and confer with counsel as they take necessary steps to comply.

Primary Takeaway

To prepare for enforcement, marketplaces are encouraged to update agreements with sellers and develop processes for collecting and verifying sellers. They must also prepare systems for receiving complaints and managing sellers that fail to comply with the verification and disclosure requirements. As mentioned, failure to do so may lead to an enforcement action and financial penalties. Failures on the part of a high-volume seller will result in suspension from some of their favorite marketplaces.

Read the article at Retail Touchpoints here.

[1] 15 U.S.C. §45f(f)(4).

[2] 15 U.S.C. §45f(f)(3).

[3] Id.

[4] 15 U.S.C. §45f(b)(1)(B).

[5] 15 U.S.C §45f(a)(2)(B).

[6] 15 U.S.C §45f(a)(2)(A).

[7] 15 U.S.C. §45f(f)(3).

[8] 15 U.S.C. §45f(f)(2)(B).

[9] 15 U.S.C. § 45f(C).

[10] 73 Pa. Stat. Ann. § 201-9.4.

[11] Cal. Civ. Code § 1749.8.4.