How marketplaces can stay compliant with the INFORM Consumers Act

While this provides consumers with convenient access to a wide range of goods and services, it also creates concerns about product safety and counterfeit items. In response, the United States Congress introduced the INFORM Consumers Act, aiming to protect consumers from deceptive practices and enhance transparency in online marketplaces.

In this article, we’ll share the significant impact of the INFORM Consumers Act on marketplaces, measures it introduces to safeguard consumers, and steps marketplaces can take to stay compliant. 

What is the INFORM Consumers Act? 

The INFORM Consumers Act, which stands for "Integrity, Notification, and Fairness in Online Retail Marketplaces Consumers Act," is a piece of legislation introduced in the United States to address concerns regarding product safety, counterfeit items, and deceptive practices in online marketplaces. The act aims to enhance transparency, protect consumers, and promote accountability within digital commerce platforms. Its provisions have significant implications for marketplaces. 

What do marketplaces need to know about the INFORM Consumers Act? 

The INFORM Consumers Act was passed in 2022 and took effect on June 27, 2023. It requires that online marketplaces verify the accuracy of seller information before allowing them to conduct business on their platforms. 

The INFORM Consumers Act represents a significant step toward ensuring transparency and accountability in online marketplaces. It requires marketplaces to provide detailed information about their sellers, including their legal name, address, and contact information. This provision aims to tackle the problem of unscrupulous sellers hiding behind anonymous profiles, making it easier for consumers to identify and report fraudulent or misleading activities.

To prevent the sale of counterfeit goods and promote trust among consumers, the INFORM Consumers Act mandates that marketplaces verify the accuracy of seller information before allowing them to conduct business on their platforms. This verification process ensures that sellers are legitimate entities and helps reduce the presence of fraudulent products within the marketplace. By implementing stricter registration requirements, marketplaces can effectively mitigate the risks associated with counterfeit goods.

The INFORM Consumers Act may specify penalties for marketplaces that fail to comply with the verification requirements. Penalties could include fines of up to $50,120 per violation, restrictions on business operations, or potential liability for facilitating fraudulent or deceptive transactions. These enforcement measures encourage marketplaces to prioritize and maintain accurate seller information.

3 important steps for staying compliant with the INFORM Consumers Act 

‍1. Enforce robust requirements for seller identity verification

The INFORM Consumers Act requires verification of information for “high-volume sellers,” which the FTC says includes generally refers to sellers that have had on that platform 200 or more separate sales or transactions of new or unused consumer products, and $5,000 or more in gross revenues, in any continuous 12-month period during the past 24 months. 

Speed matters when staying compliant with these regulations. Once a person or business meets the definition of a “high-volume seller,” the online marketplace has 10 days to collect the following information from them: 

• Bank account information: An effective way to gather and verify bank account information is by collecting bank statements. Asking for bank statements from the last 90 days will ensure that you’re getting the most recent information. 

• Tax ID information: Marketplaces can use a CP-575 or other government document that lists a business’s Employer Identification Number (EIN). If the seller doesn’t have an EIN, then you can ask for a W-2 or other personal tax document to verify the taxpayer identification number. 

• Contact information: In addition to a working email address and phone number, marketplaces will need a copy of valid government-issued identification for an individual acting as the seller like a driver’s license or passport, as well as a valid government-issued record or tax document that includes the business name and physical address of the seller (such as a W-9). 

Marketplaces should set up a clear verification process to collect bank statements, tax documents, and IDs that can be executed once a business surpasses the threshold and becomes a “high-volume seller.” 

2. Securely collect and authenticate seller documentation 

Because marketplaces only have 10 days to verify seller information, they need to be able to collect documents from sellers quickly and efficiently. Gathering documents via email can be tedious and error-prone; not only do the incorrect documents get submitted, resulting in a lot of back-and-forth between the marketplace and seller, but they often include personal information, which can be sensitive to share via email. 

Secure document collection solutions like Inscribe make it easy for applicants to drag and drop documents or take live photos of documents from their phones. Marketplaces can even set rules to ensure the correct documents are uploaded and receive alerts once documents are submitted to keep the process moving. By verifying this documentation, marketplaces can ascertain that sellers are operating within the legal framework.

Once the documents are uploaded, Inscribe’s AI-powered fraud detection automatically checks them for signs of tampering or manipulation. By confirming the authenticity of a seller’s documents, marketplaces can prevent fraudulent or misleading activities by individuals hiding behind falsified identity or financial details.

These steps will ensure marketplaces are following the INFORM Consumer Act’s stipulation “to reliably determine that any information and documents provided are valid, corresponding to the seller or an individual acting on the seller’s behalf, not misappropriated, and not falsified.” 

3. Maintain compliance with ongoing verification and monitoring

Marketplaces may be required to implement ongoing monitoring mechanisms to ensure that seller information remains accurate and up-to-date. This could involve periodic re-verification of seller details or employing automated systems that flag any discrepancies or changes in seller information.

It is important to note that the specific details and requirements of seller verification may vary depending on the legislation and regulations within a particular jurisdiction. The INFORM Consumers Act sets a general framework, but the precise implementation and enforcement may be subject to interpretation and guidance from regulatory bodies.

Investing in AI-powered document collection and verification 

With 50 million U.S. app downloads and 350,000 listings every day, Mercari is one of the leading e-commerce marketplaces for secondhand sellers in the U.S.

For Director of Anti-Financial Crimes & AML Compliance Christian Townsend, however, every listing is subject to complex regulations and licensing requirements that vary from state to state. This opens the platform to risk when sellers misrepresent their identity or location, or the origin and authenticity of the goods they are selling.

The compliance would go through a painstaking process of requesting the necessary documentation from a seller, having them submit the files through Mercari’s proprietary tools, and then manually reviewing the documents. 

In implementing Inscribe, Christian and his team were able to reduce average handle times, shaving up to one minute off the average processing time of about five minutes for a standard compliance screening (that’s a 20% reduction)

Inscribe also helps Mercari avoid hefty fines and penalties. For example, an alert generated by Inscribe helped the company avoid one potential violation due to fraud detected in documentation sent by the seller. In this case, Christian’s team discovered that the seller was listing embargoed items that can’t be imported into the U.S. — a violation that could result in millions of dollars in fines.

By implementing robust verification requirements, online marketplaces can enhance consumer trust, mitigate the risks associated with counterfeit goods, and promote a safer environment for online transactions.

Want to learn how Inscribe can help you stay compliant and avoid fines? Reach out to speak with an expert from our team.