Starting June 27, operators of online marketplaces will need to comply with a new federal statute, the Integrity, Notification, and Fairness in Online Market Retail Marketplaces for Consumers Act or INFORM Act.
The purpose of the law, which passed in December as part of the appropriations bill, is to help combat e-commerce fraud and the sale of counterfeit goods online. Although the law directly applies to the operators of these marketplaces, individuals and companies that sell their products on the marketplaces will be impacted.
The INFORM Act requires online marketplaces to undertake specific due diligence of “high-volume third-party” sellers. The statute defines high-volume third-party sellers as sellers that, in any continuous 12-month period during the previous 24 months, (1) have entered into 200 or more discrete sales or of new or unused consumer products and (2) have an aggregate total of $5,000 or more in gross revenues on the marketplace. The law does not apply to used goods or to services sold via online marketplaces.
Under the law, marketplace operators must collect—and verify—the following from high-volume sellers within 10 days of the seller using the marketplace or meeting the definition of high-volume seller:
- Bank account number, or, if the seller does not have a bank account, the name of the payee for payments issued by the marketplace to the seller
- Contact information
- Tax ID number
- Working telephone or email address
The law also requires marketplaces to obtain an annual certification of the above-listed information from each high-volume seller.
The second component of the statute is consumer disclosure. High-volume sellers with an aggregate total of $20,000 or more in annual gross revenues on an online marketplace must disclose the following information to consumers in a clear and conspicuous manner, either on the product listing page (including via hyperlink) or in the order confirmation message or other document or communication made to the consumer after the purchase is finalized and in the consumer’s account transaction history:
- Full name of seller
- Physical address of seller*
- Contact information of seller, to allow for “direct, unhindered communication” with the seller*
- Whether the seller uses a different seller to supply the product
*There are exceptions if the seller is an individual and not a corporate entity.
Third, under the statute, online marketplaces must establish and disclose to the consumer, on the product listing of any high-volume seller, a mechanism that allows for reporting of suspicious marketplace activity.
Failure to comply with these requirements could have severe consequences. For sellers, failing to provide the information to the marketplaces or disclose the information as required will result in suspension from selling on the marketplace until they enter into compliance.
For online marketplaces, the failure to comply with these requirements could result in an enforcement action by either the Federal Trade Commission or a state attorney general.
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