What You Need to Know About the INFORM Consumers Act

On June 27, 2023, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act” or the “Act”) went into effect.  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 or delivery of a consumer product” – and requires them to collect, verify, and make available to buyers certain identification information for “high-volume third party sellers” on their platforms (i.e., sellers with more than 200 transactions and $5,000 in revenues in a 12 month period).  The Federal Trade Commission (“FTC”) is responsible for enforcing the INFORM Consumers Act, and state attorneys general are provided with the right to bring civil actions against online marktplaces whose noncompliance with the Act affects residents of their states.

Key Takeaways:

• Under the new INFORM Consumers Act, online marketplaces will need to implement new measures to collect and verify bank account and identification information for their high-volume third party sellers and to obtain annual certifications – and to suspend sellers who fail to comply within 10 days.  
• Online marketplaces may also need to update their Merchant and Seller Terms of Service, Privacy Policies, Payment Processer Terms, and Purchaser Terms to reflect these new requirements under the Act.  
• The Act’s information collection and verification requirements may increase practical risks for online marketplaces by potentially exposing them to red flags of unlawful seller or buyer conduct that may give rise to liability in other contexts.

What does the INFORM Consumers Act require?  

• Collection.  Online marketplaces must collect the following information from high-volume third party sellers:
  • Bank account information.
  • Contact information (person’s name and a working email address and phone number, a copy of a valid government-issued identification for an individual acting on behalf of a corporate entity, or a copy of a valid government-issued record or tax document that includes the business name and physical address of the seller).
• Verification.  
  • Online marketplaces must verify the information they get from high-volume third party sellers within 10 days of receiving the information.
  • They also must require high-volume third party sellers to keep their information current and to certify it as accurate at least once a year.
  • Although the law doesn’t list specific verification steps, the methods the online marketplace chooses must enable it “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.”
• Disclosure.  
  • If a high-volume third party seller has annual gross revenues of $20,000 or more, the online marketplace must clearly disclose the following information on each of the seller’s product listing pages:
    • The seller’s full name, which may include the business name or the name the seller uses on the online marketplace;
    • The seller’s physical address; and
    • Contact information that will allow consumers to have “direct, unhindered communication” with the seller.
  • Suspension of non-compliant sellers. Online marketplaces must suspend high-volume third party sellers that don’t provide the information the law requires.
  • Reporting mechanism.  Online marketplaces must provide on high-volume third party sellers’ product listings a clear way for consumers to report suspicious conduct.

What are the consequences for violating the INFORM Consumers Act?  Online marketplaces that don’t comply may face FTC law enforcement that could result in civil penalties of $50,120 per violation.

Key Takeaways:

• Under the new INFORM Consumers Act, online marketplaces will need to implement new measures to collect and verify bank account and identification information for their high-volume third party sellers and to obtain annual certifications – and to suspend sellers who fail to comply within 10 days.  
• Online marketplaces may also need to update their Merchant and Seller Terms of Service, Privacy Policies, Payment Processer Terms, and Purchaser Terms to reflect these new requirements under the Act.  
• The Act’s information collection and verification requirements may increase practical risks for online marketplaces by potentially exposing them to red flags of unlawful seller or buyer conduct that may give rise to liability in other contexts.