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New Law Aimed at Stopping Organized Retail Theft and Sale of Counterfeit Products Takes Effect
A new law, known as the Inform Act, which aims to prevent organized retail theft and the sale of counterfeit and dangerous products online has taken effect. The bipartisan legislation was passed in December 2022 and requires online vendors to verify and share information on third-party sellers that do a high volume of transactions on their platforms. The law has been implemented after trade associations and retailers lobbied the US Congress following a rise in retail theft that they linked to lax regulations governing third-party sellers and verification processes on online platforms.
What is the Inform Act?
Under the Inform Act, online marketplaces such as Amazon and eBay will be required to collect, verify, and expose particular information about third-party sellers that have high transaction volumes on their platforms. The regulations apply to sellers that had 200 or more separate sales or transactions and $5,000 or more in gross revenue in any continuous 12-month period during the past 24 months. Digital marketplaces will now be required to collect bank account details, tax ID numbers, and contact information from sellers who meet the criteria and verify that information is accurate within ten days of a supplier reaching "high-volume" status.
Requirements for Third-Party Vendors
Third-party vendors are required to keep the information updated and certify it once a year as accurate. The marketplaces must disclose that information either in the sellers' product listings or order confirmations. If sellers fail to disclose the required information, the new law requires marketplaces to suspend them from the platform. For sellers that have yearly gross revenues of $20,000 or more on a particular marketplace, the platforms must show their information on product-listing pages, order confirmation messages, and account transaction histories on the platform.
Enforcement and Penalties
The Inform Act will be enforced by the Federal Trade Commission, along with state attorneys general, who could impose steep civil penalties for violations. Marketplaces that violate the law are subject to a $50,120 penalty per infringement. Additionally, state attorneys general and other state officials may also file legal actions in federal courts that could result in higher penalties from damages, restitution, or other compensation. However, it is not yet definitive how vigorously the law will be enforced.
Impact of the Inform Act
The Inform Act seeks to add more transparency to online transactions and deter criminals from obtaining and selling stolen, counterfeit, or unsafe items through online marketplaces. While such items account for a small fraction of online transactions, retailers and law enforcement officials have increasingly urged legislators to address the issue since catching bad actors who sell stolen goods online has been difficult due to their anonymity.
Several online marketplaces will be affected by the legislation, including national household names and smaller, more niche platforms. Retail industry experts and consumer advocates believe that the Inform Act will provide a way to fight against organized retail crime and provide more support and help combat this problem. These regulations will strengthen the trust factor between online vendors and customers by ensuring transparency and delivering accuracy of product information.
As a new business, it is important to take note of how the Inform Act could affect your operations. While the regulations primarily target larger online marketplaces, it is worth considering the impact on smaller niche platforms as well. One potential benefit for new businesses is the increased transparency and trust that may come from complying with the verification and disclosure requirements. This can be especially important for companies that rely heavily on third-party sellers to supply their inventory.
However, the Inform Act also comes with potential costs, both in terms of compliance and penalties for non-compliance. Companies may need to allocate additional resources towards verifying and updating seller information, and failure to do so can result in steep financial penalties. Additionally, smaller platforms may struggle with the additional administrative burden imposed by the regulations.
Overall, while the Inform Act aims to target organized retail crime and protect consumers from unsafe products, it is important for new businesses to carefully assess the potential costs and benefits of compliance. As with any regulation, it is important to stay informed and adapt to the changing landscape of online marketplaces.
