INFORM Consumers Act Brings New Regulatory Oversight to Online Marketplaces

Online retail marketplaces in the U.S. will have to collect, verify and disclose certain information from “high-volume” third-party sellers under a new regulatory requirement. 

The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, or the INFORM Consumers Act, goes into effect June 27, 2023. It requires online marketplaces collect information from third-party sellers within 10 days of their obtaining “high-volume” status, which is conducting 200 or more transactions resulting in total revenue of $5,000 or more during a continuous 12-month period. 

Online marketplaces then have 10 days to verify the seller information, which, according to the act, “may include the use of one or more methods that enable the online marketplace to reliably determine that any information and documents provided are valid, corresponding to the seller or an individual acting on the seller’s behalf, not misappropriated, and not falsified.”

The act, which was introduced in 2020 and signed into law as part of the Consolidated Appropriations Act of 2023, civil penalties of up to nearly $50,000 per violation for online marketplaces. The U.S. Federal Trade Commission will enforce the act, and attorneys general in the states where people are affected may also bring civil actions.

“By providing appropriate verification and transparency of high-volume third party sellers,” act sponsor U.S. Sen. Dick Durbin, D-IL, said, “the INFORM Consumers Act will shine a light that will deter online sales of stolen, counterfeit, and unsafe goods and protect consumers.” 

Collecting and Verifying Seller Information

The act requires online marketplaces gather such information as:

Seller bank account numbers — If sellers don’t have an account number, online marketplaces gather the name of the payee. The information can come directly from the seller or from a third party, such as a payment processor, if it can be collected within three business days.

Seller or business information — That includes the seller’s name and related information. If it’s a business, the online marketplace obtains an ID copy of the person acting on behalf of the business, a business record or a tax document with the business name and address.

Tax ID — That includes a business or taxpayer identification number(s).

Email and phone number — Online marketplaces must have a current, working email address and phone number for the seller

If online marketplaces don’t receive the information within 10 days of “high-volume” status, they must suspend the seller. Marketplaces also must contact those sellers at least annually to verify the information is accurate and up to date.

Disclosing Seller Information

The act also requires marketplaces clearly share with consumers information about “high-volume” sellers with annual gross revenue of $20,000 or more. That information includes:

• Full name of the business or person
• Physical address
• Current working phone number
• Current working email address or another form of electronic messaging the marketplace can monitor

Online marketplaces can display the business contact information in a link on a product page or in communications after a sale. There also must be an obvious way for consumers to report suspicious activity on the marketplace by “high-volume” sellers. 

How Online Marketplaces Can Prepare

Nimble, automated identity verification can play a crucial role in helping online marketplaces prepare for the requirements under the new law. Those organizations often work with sellers from around the world, and flexible, customizable verification workflows can help marketplaces quickly establish processes that achieve INFORM Consumers Act compliance globally without draining IT resources. 

As marketplaces prepare for the law, important factors to keep in mind include:

Data Privacy and Security Measures

The law requires marketplaces “implement and maintain reasonable security procedures and practices.” Considering they’re collecting and storing sensitive information, it’s important to consider the measures that can protect data from unauthorized use.

Reliable Verification
What technologies and verification workflows are best suited for marketplaces to verify individuals and businesses? Where are the sellers and can they be quickly verified? 

Verification at Scale

Some marketplaces will need to verify a large number of sellers. Manual verification processes can be slow and open to error. Are there automated, easy-to-build workflows that can help marketplaces scale up their verification processes? 

Policies for Problematic Sellers
While the law is about collecting, verifying and disclosing seller information, what happens when marketplaces encounter problems with a seller? Does the marketplace have clearly defined policies and procedures for those circumstances?

Integration With Other Systems

Deploying single-point solutions can result in an inefficient patchwork of verification tools. How will new identity verification capabilities work with fraud, risk and other services? How adaptable will it be in different regions around the world? How quickly can marketplaces adjust verification to new requirements or regulations?

The INFORM Consumers Act poses a new challenge for online marketplaces. It also presents new opportunities for organizations to enhance trust and safety in their digital environments and expand their global reach without adding unnecessary friction for “high-volume” sellers.