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The INFORM Consumers Act: Ensuring Legitimacy of the Ecommerce Sector

29 December, 2023

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Online marketplaces are always at risk of fraud in today’s digital world. It’s a grave issue for both the seller and the consumer. As of a report issued by Juniper Research in 2023, the Ecommerce sector is estimated to hit a loss of $48 Billion, which is enormous. False advertising, fake profiles, and phoney listings, including the sale of counterfeit goods, pose a severe threat to the business’s reputation.

However, every problem comes with a solution. The INFORM Consumers Act significantly helps the Ecommerce sector prevent fraud while maintaining the integrity of consumers. It directs businesses to include an in-depth verification of the sellers on an Ecommerce platform and an ongoing analysis to prevent fraud. That said, online companies need to follow the regulations of this act while ensuring compliance. This article explains everything about the INFORM Consumers Act, its requirements and policies, and how it assists Ecommerce companies in preventing fraud.

What is The INFORM Consumers Act?

The INFORM Consumers Act aims to combat online marketplace deceit, particularly the sale of robbed or fraudulent products. INFORM Act is the complete title of the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act. The legislation was ratified in the latter half of 2022, and operations commenced in June 2023.

The legislation requires e-commerce stores to gather and verify specific information regarding sellers’ generating a particular level of revenue. Furthermore, it makes it convenient for regulatory authorities to identify and prevent fraudulent activities in online marketplaces.

Standard Policy of INFORM Consumers Act

The main aim behind the INFORM Consumers Act is to restrict the sales of fake or robbed items in online marketplaces. In this regard, seller platforms have to implement specific regulations to make it feasible for law enforcement agencies to identify the risk of fraud while determining imposters. Nevertheless, the following are the specific primary requirements:

  • The online marketplaces must gather and authenticate all high-volume and third-party sellers’ contact information, bank details, and tax identification numbers. High-volume and third-party sellers are those online merchants who conduct 200+ transactions in a year or generate at least $5000 of revenue annually. During the verification process, e-marketplaces are directed to gather and verify identity documents, tax certificates, emails, and phone numbers.
  • The INFORM Act also demands that eCommerce platforms give consumers a credible source to report suspicious activities regarding sellers.
  • Furthermore, the act directs the merchants generating at least $20000 revenue to expose their identity to customers, including their business name, contact details, and physical address. 

If E-commerce platforms fail to comply with the regulations of the INFORM Consumers Act, they might face legal consequences and actions from the Federal Trade Commission (FTC).

Inform act in marketplaces

Online Marketplaces Affected by The INFORM Act

The US INFORM Consumers Act must be implemented by all e-commerce platforms collaborating with third-party sellers and allowing them to sell via their medium in the USA.  The act covers all the e-marketplaces selling goods or services, including Amazon, eBay, Etsy, Alibaba, etc. Additionally, social media selling platforms such as Facebook and Instagram pages also come under this regulation.

The Consumers Act for Amazon Platform

The INFORM Consumers Act sometimes needs to be clarified among the sellers on Amazon related to vendor screening. However, here’s what everyone must know.

When a seller completes their account verification process on Amazon, they receive an email regarding completing their account validation process. However, the process can take up to 24 hours, and it then appears on the seller’s account health page that the account is verified. 

Furthermore, once a seller has completed the verification process, they might check their account by visiting the account information page. It helps ensure that all business details are accurate and up to date.

Consequences of Non-compliance 

All ecommerce platforms, including Amazon and other online marketplaces, must adhere to the regulations issued by the INFORM Consumers Act. Hence, these platforms demand sellers to complete their verification process as per the act discussed above. The sellers or businesses, when they fail to comply with the legislation and don’t provide enough information the platform needs, can face the deactivation of the selling account. Following the rules in Section 3 of the Business Solutions Agreement, Amazon can also retain payments of businesses or sellers.

The INFORM Act directs the online marketplaces to suspend the users in case of non-compliance with the issued policy. However, online marketplaces are now on high alert because of the potential civil fines of $50,120 per infraction that might affect them.

Who Does the Act Help?

The act undoubtedly helps online marketplaces ensure transparency in online selling. It can further assist in building a reputation and establishing trusted relationships in the industry. However, the following are the entities that primarily gain benefits from the INFORM Consumers Act. Let’s discover how:

Selling Brands & Businesses

This Act makes it harder for bad actors to sell fake goods and pretend to be a brand, which is suitable for brands doing business online right away. Because the requirement is so low, dishonest people will have to prove who they are to online markets before they make even $5,000 in sales, or they will have to use fake names and IDs to commit theft. Also, the information given will make it a lot harder for counterfeiters to keep making new fake names or secret aliases.

Buyers & Consumers

Customers are now much safer when they shop, which is one of the enormous benefits of the INFORM Consumers Act. Now, brands have many more tools to eliminate fake goods from online markets. Many markets sell medicines, foods, and cosmetics illegally, which can be dangerous for end users. People who shop online feel safer now that they know they are working with a genuine seller and not a fraudster who doesn’t care about making sure the customer is happy. 

Also read: What is the Digital Markets Act?

E-commerce Platforms

At first glance, this Act may add more work to online markets. However, many platforms have had similar rules in place for years. Marketplaces like eBay, Target, and Amazon initially backed this bill. For a long time, they’ve let brands and users report fake goods and have had them taken off their platforms.

How The KYB Can Help

It is imperative to Know Your Seller for any e-commerce platform before building ties with them. That’s where The KYB comes in. Our extensive seller verification solutions help online marketplaces comply with the INFORM Consumers Act. Marketplaces can utilize The KYB’s business information collection service to gather counterparty information such as bank details, tax identification numbers, addresses, etc., and verify them across official registries. The KYB allows online marketplaces to only allow legit businesses to join their platform by verifying merchant businesses before onboarding.

We offer extensive due diligence to businesses to prevent the risk of fraud and loss for consumers and businesses alike. Contact our experts today and discover how our end-to-end business verification solutions can ensure the legitimacy of your e-commerce platform.

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