As of June 27, 2023, the Federal Trade Commission ("FTC") will begin enforcing the recently passed Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act ("INFORM Consumers Act"). The INFORM Consumers Act is designed to provide transparency to consumers with regard to the third-party sellers selling products on online marketplaces (like Amazon) and requires online marketplaces to collect, verify, and disclose certain information about certain third-party sellers. Below is a general overview of the requirements for compliance with, and the penalties associated with non-compliance with, the INFORM Consumers Act.
Applicability and Key Definitions
The INFORM Consumers Act applies to online marketplaces only when "high-volume third-party sellers" are present on that online marketplace. Under the INFORM Consumers Act, "online marketplaces" are defined as consumer-directed platforms, operated by a person or entity, that allow for and facilitate the sale of products by third-party sellers to consumers in the United States. To be considered "high-volume," a third-party seller must have had, in any consecutive 12-month period over the last 24 months, 200 or more sales or transactions and have a total of $5,000 or more in gross revenue. These thresholds are based on sales or transactions and gross revenue specifically made through sales on the online marketplace.
If subject to the INFORM Consumers Act, the online marketplace must obtain and provide certain information with respect to high-volume third-party sellers, but not other third-party sellers. To achieve the INFORM Consumers Act's goal of providing transparency to consumers and ultimately curb deceptive selling practices, the INFORM Consumers Act requires each online marketplace:
- collect certain pertinent information about each high-volume third-party seller, including, but not limited to, the seller's bank account, the seller's contact information, and the seller's tax identification number;
- verify that the information collected from each high-volume third-party seller is valid and current; and
- disclose to consumers additional information for each high-volume third-party seller that has $20,000 or more in annual gross revenues made through that online marketplace.
To further consumer confidence, the online marketplace must also provide a reporting mechanism for consumers to raise concerns related to suspicious high-volume third-party sellers.
The online marketplace has 10 days from the date upon which the seller fits the definition of a "high volume third-party seller" to collect the required information and then 10 days from receipt thereof to verify that information. If a high-volume third-party seller does not provide the required information in a timely manner, the online marketplace must provide written notice to the high-volume third-party seller and give the high-volume third-party seller 10 additional days to cure its non-compliance. If the high-volume third-party seller again fails to provide the required information, the online marketplace must suspend the high-volume third-party seller from engaging in future sales activity on the online marketplace. The online marketplace can only lift the high-volume third-party seller's suspension if and when the seller provides the required information.
If the online marketplace fails to comply with any of the requirements set forth by the INFORM Consumers Act, the online marketplace could face a $50,120 penalty for each violation. This penalty is only imposed against non-compliant online marketplaces and not against high-volume third-party sellers. Additional actions may be taken by the FTC, State Attorneys General, or other authorized officials to enforce the online marketplace's compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.