The Federal Trade Commission ("FTC") secured its first enforcement action under the INFORM Consumers Act, obtaining a $2 million settlement with Temu to resolve allegations that Temu failed to provide required seller disclosures and adequate reporting mechanisms. This inaugural case provides the industry with clear guidance on the compliance benchmarks online marketplaces must meet to avoid significant penalties.
This enforcement action signals that the FTC will not accept technical implementation challenges as excuses for non-compliance. Additionally, regulators are clearly dedicating resources to investigate specific user flow compliance documentation and will enforce compliance violations.
Online marketplaces should expect increased scrutiny of platform design and user experience elements. This action signals that the FTC is devoting resources to review the actual user experience, and we expect enforcement of INFORM Act violations to be a priority for the FTC.
The INFORM Consumers Act
The INFORM Consumers Act, which became effective in 2023, requires online marketplaces to:
- Collect and verify information from high-volume third-party sellers (defined as either more than two hundred (200) transactions or earning over $5,000 in revenue over 12 months).
- Provide reporting mechanisms for consumers to report suspicious marketplace activity online or by calling the business and clearly disclose these methods to consumers.
- List the identity of high-volume sellers with over $20,000 in annual revenue, including full names, physical addresses, and contact information in a "clear and conspicuous manner."
- Non-compliance can result in civil penalties of up to $53,088 per violation. The INFORM Act grants states enforcement powers, which could result in exposure to additional penalties and litigation beyond federal actions.
What Went Wrong: Temu's Alleged Violations
The FTC alleged that Temu failed to provide consumers with a telephonic reporting option until January 2024 despite prior warnings from the FTC six (6) months earlier. Temu also failed to include any reporting mechanism or seller information with its popular game-like shopping features until November 2024, seventeen months after the effective date.
The FTC also took issue with the confusing nature of the disclosures, such as requiring consumers to scroll through multiple screens and clicking vague "report" links without clear explanation. The phone reporting option required callers to navigate up to 6 menu options and then make multiple added selections.
The FTC also cited Temu's inconsistent disclosures across its platforms. While certain disclosures appeared on its website, its mobile site lacked the required disclosures, and this was not corrected for some time.
Temu's information did not meet accessibility standards because it required clicking through "See all" links and navigating to separate seller pages via tiny, hard-to-recognize icons.
Compliance Guidance
This settlement signals that the FTC has limited tolerance for gradual compliance implementation, particularly after a rule's effective date. It also provides businesses with a clear compliance roadmap including:
1. Ensuring required disclosures are:
- Prominently displayed at the top of product listings or in a clearly visible location that does not require scrolling.
- One click away with no intervening menus or selections.
- Clearly labeled with text that directs consumers to the reporting method.
- Consistently available on all platforms including mobile apps, mobile websites, and any gamified experiences.
2. Supporting both an online and telephone reporting mechanisms.
3. Making seller information:
- Easily discoverable and accessible without multiple clicks or menu navigation.
- Consistently available across all platform interfaces and viewing modes.
- Clearly presented with obvious labeling and contrasting design elements.
4. Carefully designing the user interface by:
- Considering the size, contrast, and placement of required disclosures so that consumers can easily notice and understand them.
- Including disclosures on every product listing for qualifying sellers.
Actions Businesses Should Take Now to Ensure Compliance
- Engage technical teams to audit user experience across all platforms and user flows.
- Review all gamified or alternative shopping experiences for INFORM Act compliance.
- Test the actual user experience by having non-technical staff try to access reporting and seller information.
- Establish a compliance monitoring procedures for ongoing platform updates.
- Implement clear internal policies and prepare training for design and development teams to ensure compliance with the INFORM Act requirements.
- Create user testing protocols to verify that new features support compliance standards.
- Review vendor and partner obligations to ensure third-party implementations meet standards.
- Develop incident response procedures for addressing potential compliance gaps.
The CommLaw Group can help you assess exposure, remediate risk, and build a defensible compliance record
Our firm has been closely tracking FTC's enforcement actions on online marketplaces and the development of INFORM Act. We have advised clients across the telecommunications, digital media, software, and e-commerce sectors on best practices, litigation strategy, and regulatory implementation.
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.
