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Inform Consumers Act

12 March, 2024

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The convenience of online marketplaces has made them a popular alternative for consumers buying online, enabling them to buy from the comfort of their own homes. Entrepreneurs prefer these marketplaces because they allow them to sell their items without the high expenditure of setting up a physical shop or creating a website from the ground up. However, the absence of stringent controls on merchants makes customers vulnerable to fraud since imposters target insecure marketplaces. With the main objective of safeguarding customers against con artists and fake products, the United States Congress took up this matter in 2021 by introducing a regulation named The INFORM Customers Act. Nevertheless, by June 27, 2023, online marketplaces must adhere to the rules of this act.

 

What is the INFORM Consumers Act?

The INFORM Consumers Act aims to combat the selling of fake goods, increase confidence in online purchases, safeguard consumer rights, and disseminate accurate product information. Furthermore, the INFORM Act was created to help fight against organized criminal organizations that use internet retail platforms to market stolen items. Although these shopping sites may face higher expenses due to new regulations, holding online marketplaces accountable might be the first step in curbing online retail crime.

Critical Requirements of the INFORM Consumers Act

A few of the most important things that the INFORM Consumers Act requires from ecommerce marketplaces are as follows:

  • Any third-party vendor with over 200 transactions and $5,000 in annual revenue must provide a government-issued ID in addition to their name, bank account number, tax identification number, and a functional email address and phone number. This requirement applies to “high-volume third-party sellers” as well.
  • If a vendor has yearly sales of $20,000 or more, their name, physical address, phone number, email address, or other means of contact must be shown to buyers on the product listing page, in purchase confirmations, and the buyer’s account transaction history on online marketplaces.
  • If a vendor other than the one advertised online provides a good, the marketplace must notify the customer.
  • All seller information and supporting documents must be double-checked and confirmed annually by online marketplaces.
  • Online marketplaces should implement data security procedures to safeguard vendor information.
  • When listing pages for third-party vendors with a lot of traffic, online marketplaces need to ensure that customers can report any questionable conduct.
  • When asked for specific information, online marketplaces have 10 days to respond; otherwise, they must suspend merchants.

 

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Data Collection & Verification

According to the INFORM Consumers Act, within 10 days after a business meets the criteria for becoming a “high-volume third-party seller,” the online marketplace will request the following details:

Bank Account Details

A bank account number or, in the absence of such, the name of the person or entity authorized to receive payments on your behalf should be collected by the online marketplace. Nevertheless, online marketplaces can request this information from associated merchants directly or via a third party it has authorized, such as a payment processor.

Tax Identification Number

With a taxpayer identity number, the online marketplace is required by law to request your business’s tax identification number. It allows ecommerce platforms to ensure the legitimacy of merchants by confirming that newly onboarded businesses are taxpayers.

Contact Details

Even if a business comprises only an individual, the online marketplace still needs their name, email, and phone number to process sales. Any business, partnership, or legal entity selling goods or services online in bulk is required by the marketplace to provide a valid email address, phone number, and either a copy of a government-issued ID for an authorized representative or a copy of a tax document or record that includes the seller’s physical address and company name.

Compliance Failure & Reporting Mechanism

Each high-volume third-party seller’s product listing page on the online marketplace must prominently display a reporting feature that enables customers to report suspicious conduct via phone or email. An online marketplace has 10 days from the date of notification (either written or electronic) to comply with the INFORM Consumers Act if a high-volume third-party vendor fails to provide the necessary information. It is the marketplace’s responsibility to prevent high-volume third-party vendors from making further transactions until they comply.

Enforcement of the INFORM Consumers Act

Violating the Act is the same as breaking a Federal Trade Commission regulation. Marketplaces operating online run the risk of incurring fines for violations of the Act. According to the FTC’s compliance guide, civil penalties for online markets that violate the Act may reach $50,120 per violation. Sending 50 letters to online marketplaces on June 20th, the FTC notified them of their duties to comply with the Act one week before it entered into force.

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