The rapid growth of e-commerce has revolutionized the way we shop. It has made both buying and selling more convenient by giving buyers more variety and pushing sellers to indulge in endless pricing wars.
According to recent reports by eMarketer and Statista, e-commerce sales worldwide are expected to reach a staggering $6.51 trillion by 2023, and there are no signs of it slowing down. But it has also led to an alarming rise in counterfeits, stolen goods, and potentially dangerous products infringing a brand’s commercial and consumer safety policies being sold on online eCommerce marketplaces like Amazon, Walmart and eBay.
Moreover, the glaring lack of regulation has given third-party sellers free rein in the marketplace, further intensifying consumer safety concerns. But all is not bleak!
At the end of 2022, the US Congress passed the INFORM Consumers Act. This new law might be just what we need to protect consumers as well as brands from the malpractices of counterfeiting. So, if you’re a branding or e-commerce marketer, legal professional or business owner, you might want to know everything about the INFORM Consumer Act. This article aims to give you an overview of it.
Let’s start with some background
Integrity, Notification, and Fairness in Online Retail Marketplaces (INFORM) for Consumers Act was first introduced in March 2021. The bill addressed the sale of stolen, counterfeit, and dangerous products, by high-volume third-party sellers on digital marketplaces. At first, the bill was met with concerns about a potential negative impact on individual and small-business sellers. After much deliberation and debate, in October 2021, a new version of the INFORM Consumers Act was introduced, which gained broader support.
Eventually, in December 2022, the INFORM Consumers Act became law as part of the Consolidated Appropriations Act of 2023, signed by President Biden. This new version of the Act has been gaining popularity for its provisions in protecting consumers from counterfeiters and unauthorized sellers, while still reducing the negative impacts on small businesses.
So, what is the INFORM Consumer Act?
Along similar lines as the EU’s Digital Services Act, The INFORM Consumer Act is a US bill that aims to keep customers safe from potentially dangerous and unsafe products being sold on eCommerce Marketplace like Amazon, eBay and Walmart, while consequently shining a light on the importance of brand protection.
The Act requires online marketplaces to collect, verify, and disclose specific information about high-volume third-party sellers, like their bank details, identification, and tax number. Furthermore, the Act states that online marketplaces must display certain seller details, such as names and contact information, on product listings or at other steps in a customer’s purchase journey. Thus, making online marketplaces more transparent and secure for consumers.
As per the Act, high-volume third-party sellers are defined as sellers who have completed 200 or more transactions and earned at least $5,000 in total revenues annually. We’ll get into detailed definitions and requirements of this Act later in the article.
This new Act will apply to all online marketplaces where third parties sell products to consumers. It defines the term ‘online marketplaces’ as any platform that lets third-party sellers engage in activities like selling, buying, paying, storing, shipping, or delivering products to consumers in the United States. That includes the likes of Amazon, eBay, Etsy, Walmart, and other digital marketplaces. While the Act impacts online marketplaces in the United States, it applies to all sellers even outside the country.
Starting 27 June 2023, the Federal Trade Commission (FTC) will begin enforcing the INFORM Consumers Act, leaving no choice to online marketplaces and third-party sellers but to comply with the regulation.
What is the INFORM Consumer Act asking for?
The INFORM Consumer Act requires online marketplaces to take certain actions based on the volume of revenues or transactions made by a given seller.
For sellers earning revenues worth $5,000 in a year
If a seller has completed over 200 transactions and earned revenues worth $5,000 in a continuous 12-month period during the last 24 months, online marketplaces will need to collect and verify the following details about them.
1. Every high-volume, third-party seller must share their bank account number with the online marketplace they operate on. In case they do not have a bank account, they must share the name of the person receiving payments from the completed sales.
2. Secondly, the seller must share their business tax ID number. If they do not have this, they must provide an individual taxpayer ID number.
3. Individual sellers need to provide their contact details like name, work address, and phone number. Whereas businesses must submit a valid government ID for the person representing the business, as well as government documentation or tax records that includes the business name and address.
The INFORM Act is ground-breaking because it not only directs sellers to provide their information to marketplaces, but it also asks marketplaces to verify this information within 10 days of receiving it. What’s more? Marketplaces also need to verify this information electronically at least once every year. If the seller fails to comply, the marketplace must suspend all their activities until accurate information is provided.
For sellers earning revenues worth $20,000 in a year
If a seller earns over $20,000 in yearly revenues, the marketplace must show certain details to customers in a clear and easy-to-see way. This can be either linked on the product listing page. Or mentioned in the order confirmation message and transaction history. What information must be displayed?
1. The full name of the seller
2. The seller’s address
3. The contact information of the seller, like a working phone number, email address, or other direct ways to message them.
If the marketplace finds out that a seller has given false information or is not responding promptly to customer inquiries through the limited means provided, they must notify the seller and give them a chance to respond. If the seller doesn’t agree to share their full identity information, the marketplace must suspend future sales within 10 days of the notice being issued. Lastly, online marketplaces must clearly inform customers about a system for reporting suspicious activity on product listings from high-volume sellers.
What happens in case of non-compliance?
Depending on whether you’re a seller or an online marketplace, non-compliance with the Act can lead to different consequences.
If a marketplace fails to comply, the FTC can impose fines of $46,517 every time the Act is violated. Moreover, there can also be legal action taken against them by state attorney generals if a violation of the law is believed to affect people in their state.
If you’re a high-volume third-party seller who fails to provide information and details as per the notices given by marketplaces, your sales activities can be suspended, leading to a negative impact on revenue.
Key Takeaways
Until recently, marketplaces did not have a lot of responsibility when it came to protecting consumers or brands from the clutches of counterfeiting. However, the INFORM Consumer Act aims to change all this for the better.
Not only does it hold marketplaces and third-party sellers accountable for the sale of counterfeits, stolen, or dangerous products, but it also highlights the importance of brand protection in a day and age where e-commerce sales are going through the roof.
It emphasizes that brand protection in e-commerce is not just a nice-to-have, it’s a must-have.
Brand Protection Solutions
Brand Protection Solutions like GreyScout, can work in combination with the INFORM Consumer Act to provide brands an added support and take ownership and control of protecting their brands on eCommerce marketplaces.
As an example, GreyScout uses a three-pronged automated approach to protect brands from counterfeiters and bad actors who are potentially infringing brand’s commercial compliance and safety policies by selling products which are materially different, damaged, parallelly imported, stolen or even high-risk such as products past expiry dates.
1. Detect and Monitor: GreyScout helps you quickly detect and monitor all resellers listing products out of the brand’s official supply chain channels. It also enables brands to keep an eye on counterfeit listings, giving you a comprehensive view of unauthorized third-party sellers, their listed products, and their activity status. This allows you to stay updated and take necessary actions, if necessary.
2. Verify and Authenticate: Once unauthorized resellers are identified, GreyScout enables brands to investigate how they obtained your products. By requesting proof of purchase and other documentation, brands can authenticate the listings and examine if they are deemed safe for consumers in accordance with their compliance policies.
3. Enforce and report: If sellers fail to comply with a brand’s compliance and safety policies, GreyScout helps take enforcement actions at scale by automated processes integrated across various brand protection and IP portals like Amazon brand registry, and eBay Vero programs.
Bottom Line
The new INFORM Consumer Act has brought a big change to marketplaces. They’re now more eager than ever to eliminate counterfeiting in an effort to ensure a safe shopping experience for customers. This means they’re also eager to support brand protection to make for a safer selling experience for brands. In this scenario, a brand protection SaaS solution such as GreyScout can help partner with both brands and marketplaces to make a real difference in fighting counterfeiters and various other e-commerce malpractices.
Want to know more about GreyScout’s brand protection SaaS solution? Request a demo.
