The FTC is putting online marketplaces on notice they must be ready to comply with the INFORM Consumers act as soon as it goes into effect on June 27th - and failure to do so could incur fines of up to $50,120 per violation!
The Federal Trade Commission has sent letters to 50 online marketplaces nationwide notifying them about their obligation to comply with the new Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act – or the INFORM Consumers Act – as soon as it takes effect on June 27.
“The INFORM Consumers Act requires online marketplaces to protect consumers from counterfeit, unsafe, and stolen goods by verifying their high-volume third-party sellers’ identities, and making it easier for consumers to report suspicious marketplace activity,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The Commission will enforce the Act to the fullest extent possible and will collaborate with our state partners to hold online marketplaces accountable.”
The letters announced today enclose a copy of the act, highlight the responsibilities the act places on online marketplaces, and urge that businesses carefully review the statute and take all steps necessary to fully comply by June 27. In the letters, FTC staff also urge online marketplaces to communicate with their third-party sellers about the information the act requires to be collected, verified, and disclosed.
Finally, the letters emphasize that a violation of the act may be treated as a violation of an FTC rule, and thus noncompliant online marketplaces may face enforcement that could result in civil penalties of $50,120 per violation. The letters are informational and the FTC is not publicly releasing the names of the recipients.
The INFORM Act was passed as part of the 2023 Omnibus bill and requires online marketplaces to verify and in some cases disclose identity and contact information for "high volume" 3rd party sellers in an effort to clamp down on internet fraud and protect consumers.
Major online marketplaces have been getting sellers prepare for the new requirements, including how to apply for exceptions for sellers who qualify, with some processes going smoother than others.
Etsy put out a sitewide announcement about the new requirements last month.
eBay also provided an announcement to sellers, including instructions for how to apply for an exception if you are a home based business.
Amazon's process has been much more problematic, with glitches and delays in updating identity details putting seller accounts in jeopardy of being deactivated.
In addition to the requirements to verify and provide seller contact information, the INFORM Act also has a very interesting section that could have massive implications for online arbitrage dropshipping.
Simply put, the act requires high volume sellers to disclose if they use a different seller to supply goods to buyers and if so, they may also be required to provide the contact information for that different seller as well as their own contact information.
DISCLOSURE REQUIRED - An online marketplace shall require any high-volume third-party seller with an aggregate total of $20,000 or more in annual gross revenues on such online marketplace to provide the information described in subparagraph (B) to the online marketplace; and disclose the information described in subparagraph (B) to consumers in a clear and conspicuous manner...
...INFORMATION DESCRIBED - The information described in this subparagraph is the following:...
...Whether the high-volume third party seller used a different seller to supply the consumer product to the consumer upon purchase, and, upon the request of an authenticated purchaser, the information described in clause (i) relating to any such seller that supplied the consumer product to the purchaser, if such seller is different than the high-volume third party seller listed on the product listing prior to purchase.
This could have a huge impact on sellers who list items on eBay or Etsy and then purchase them from Amazon or Walmart to "dropship" them to their buyers.
While this type of dropshipping is theoretically forbidden by many marketplaces policies, those policies are rarely enforced and the practice still plagues many platforms.
It will be interesting to see if the INFORM Act forces the marketplaces to get serious about enforcing those policies and what action the FTC will take if they do not.