Purpose of the INFORM Act

The INFORM Act is designed to make online transactions more transparent by requiring the disclosure of certain information from online marketplaces. It is also designed to disincentivize criminal activity from occurring on online marketplaces as identity verification is aimed at preventing criminals from selling stolen or counterfeit groups. The INFORM Act also provides users with a way to report criminal activity.

Key Statutory Definitions

An “online marketplace” is defined under the INFROM Act as “any person or entity that operates a consumer-directed electronically based or accessed platform that (a) includes features that allow for, facilitate, or enable third party sellers to engage in the sale, purchase, payment, storage, shipping or delivery of a consumer product in the United States, (b) is used by one or more third party sellers for such purposes, (c) and has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.”

For the INFORM Act to apply to an e-commerce site, an online marketplace must qualify as a “high-volume third party seller” which means “a participant on an online marketplace’s platform who is a third party seller and, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consumer products and an aggregate total of $5,000 or more in gross revenues.”

Requirements of the INFORM Act

The INFORM Act applies to online market places which offer new or unused consumer products. If a company qualifies as an online marketplace, it must take steps to collect, verify, and disclose information regarding the identity of a seller or be subject to a civil penalty if it does not. 

The information that must be collected from high volume third party sellers includes: bank information, contact information, tax ID numbers, and a current email address and phone number from high-volume third party sellers. Contact information includes the seller’s name if the seller is an individual. If the seller is not an individual, it can provide valid government ID that includes the name of the individual operating the business on behalf of the seller or an official document with the name of the business and its address. An online marketplace also must notify the seller that they are collecting the required information at least once annually and the seller must thereafter certify that it updated the online marketplace within 10 days if there are any changes to its information.

The online marketplace must also confirm that the information collected is accurate with 10 days of the date on which they collected it. The online marketplace must also verify the information that a seller provides (including any changes to their contact information) within 10 days.

The Act’s disclosure requirement means that an online marketplace must ensure that a high volume third party seller with more than $20,000 in gross annual revenue disclose specific information “in a clear and conspicuous manner.” This information includes the identity of the seller which includes their full name, their company name, their physical address, and contact information which includes a current phone number or email address.

Congress included various data security requirements in the Act, and online marketplaces cannot over-collect in order to obtain additional data and they must take measures to secure the data.

The marketplace also must include a way for consumers to contact them on their product listings so that they can report any suspicious activity.

Enforcement of the Act

The Act grants enforcement powers to State attorneys general and the FTC. State attorneys general may bring a civil suit to prevent the defendant from violating the Act further, ensuring the defendant complies with the Act, enforcing civil penalties or other remedies, and they may request the defendant to pay damages in some form to compensate the state’s residents. The FTC can intervene in this suit if appropriate.

The FTC may enforce this Act under 15 U.S.C. §  57a(a)(1)(B). A violation of the INFORM Act is considered an “unfair or deceptive act or practice” under the FTC Act, and a “violation” includes any failure to comply with the collection requirements and disclosure requirements outlined above. This may indicate the FTC could fine online marketplaces every time they do not follow the collection and disclosure requirements. The INFORM Act also allows the FTC to enforce civil penalties of up to $50,120 per violation.

The FTC sent several large companies a letter before the INFORM Act went into effect encouraging them to ensure they were compliant by June 27, 2023. This outlined the obligations that online marketplaces must fulfill and encouraged companies to review the statute and take steps to ensure they are compliant. It also clarifies that online marketplaces that do not comply with the INFORM Act could be subject to FTC law enforcement and potentially civil penalties.

In passing the INFORM Act, Congress indicated a desire to more directly regulate online marketplaces and high-volume third party sellers. As large companies seem to be responding proactively to this new law, others companies have already or may soon follow suit. The INFORM Act also creates new business opportunities for third party vendors with offerings that may assist online marketplaces to collect and verify the prescribed fields of information.

As with any newly passed legislation, there is not yet FTC guidance to better define the contours of the law or “inform” the market as to which players may be susceptible to enforcement activity. If and when such enforcement actions commence, they will certainly be instructive with regard to compliance practices. 

Please see here for more information on the INFORM Consumers Act.