The INFORM Act Curbs Online Fraud, Poses Business and Tech Challenges

The INFORM (Integrity, Notification, and Fairness in Online Retail Marketplaces) Consumers Act, which went into effect in late June 2023, marks a significant step forward in curbing online fraud by third-party sellers and organized theft from retail stores.

Its primary purpose is to protect consumers by stifling sales of counterfeit, stolen and harmful products on online platforms — from ecommerce stores like Amazon, Etsy and auction sites to the many smaller marketplaces that may operate more locally or in niche categories.

The law requires online marketplaces to collect, verify and disclose information about high-volume third-party sellers that sell new or unused consumer products to make it easier for regulators and investigators to investigate suspected fraud.

Here is the gist of the INFORM Act. Marketplaces are required to collect and verify information — government IDs, contact details, bank accounts and tax identification numbers — of any seller that conducts more than 200 transactions and grosses a minimum of $5,000 in a 12-month period. The law also requires sellers that exceed $20,000 revenue in one year to disclose their name, contact information and physical address to customers. Should the online marketplace detect any suspicious activity, it’s required to report it to the authorities.


But compliance can be complicated. While this is all good for consumers and the retail business as a whole, new regulation always poses a number of compliance challenges. And the INFORM Act is no exception.

How we Got Here — From Brick-and-Mortar Theft to Online Fraud

Ecommerce has a long history of facilitating theft in retail stores by serving as a channel for fencing stolen goods. However, the “steal locally, sell globally” problem boomed in the last decade with the rise of organized retail crime (ORC). This refers to “smash and grab” mobs making well-planned, coordinated raids to rob stores. The stolen merchandise is then sold via online marketplaces.

As the losses from ORC soared into the tens of billions across the U.S., chain stores and high-end brands began to lobby Congress, demanding they pass laws to curb online fencing of stolen goods. It took a couple of years to push through the INFORM legislation aimed at reducing ORC, and during that time thousands of stores closed because shrinkage became unacceptable.

Online marketplaces have been the choice environment for fencing high-end goods, but ORC isn’t their only issue. Virtually every marketplace platform today is littered with counterfeit listings and deceptive seller profiles. Marketplaces are fertile ground for a variety of criminals, and it always comes back to online anonymity. When fraudsters’ identities are hidden, they are free of accountability.

The sheer volume of transactions and the geographical reach of online marketplaces also made it very challenging for enforcement agencies to monitor and curb such illicit activities.

In addition, sales of counterfeit goods and medicines and other online fraud impose a tremendous cost on consumers who have had little recourse against third-party sellers. When customers lose trust, they pull back, which inevitably impacts the online retail business. 

The Challenges: What Marketplaces Need to Consider to Stay Compliant

There’s no doubt that online fraud and fencing need to be stopped. The burden for making that possible falls on the online marketplaces. They must make major adjustments to comply with INFORM, which requires them to:

  • Track and recognize each seller’s status: Each marketplace is responsible for tracking every seller’s volume, for immediate action when they pass the different thresholds. It’s an ongoing responsibility and repeats annually.
  • Verify data provided by sellers (quickly): Identity verification within the 10-day deadline can be particularly difficult for platforms with international sellers. Ensuring that thousands of sellers provide accurate and valid identification documents can be time-consuming and resource-intensive.
  • Freeze non-compliant seller accounts. INFORM mandates fast action against uncooperative sellers. If they don’t provide valid information in time, the marketplace must suspend their accounts.
  • Collect and analyze seller data: Online marketplaces will need to establish systems and processes to collect and analyze data to spot potential fraud. This requires investing in technology and expertise to detect fraudulent activities effectively.
  • Disclose seller data as required: If a seller exceeds $20,000 in sales on a particular marketplace in a 12-month period, then each product listing and order confirmation must include the seller’s name, address and contact or product return information.

Overcoming ‘Dueling Compliance’ Conflicts

INFORM requires marketplaces to protect the data they collect from sellers. While meeting compliance with INFORM, marketplaces must avoid running afoul of data privacy laws. And that’s not limited to the famously privacy-conscious EU. Many states. and over 120 countries, have data privacy laws, and they vary considerably. Compliance could involve navigating different legal frameworks and data protection regulations while properly informing sellers how their data will be used and where it will be disclosed.

The INFORM Act is Tough. That’s Good for Business and Consumers.

INFORM aims to eliminate fraud and end impunity. Instead of a single entity (the FTC) holding marketplaces accountable, there are 51. because INFORM also empowers state attorneys general to audit and impose civil penalties.

Revealing the identity of high-volume sellers to the public adds transparency to the purchasing process. Consumers can make more informed decisions, and they have more likelihood of recourse if a seller engages in fraud. INFORM sends a message that the government is serious about protecting consumers and supporting retailers.

Time will tell how effectively consumers, the online retail industry and law enforcement can use visibility into third-party sellers to reduce online fencing and fraud. Ending anonymity for sellers should benefit the entire retail chain, from manufacturers and brands through both physical and online channels — including, of course, consumers and the marketplaces themselves.

Rick Song is the CEO and Co-founder of Persona, the identity infrastructure company offering businesses the building blocks to create a personalized identity verification experience for any use case. Earlier in his career, Song noticed a fundamental problem with identity verification: providers were taking a one-size-fits-all approach that did not meet businesses’ needs and consumers’ expectations. In 2018, he co-founded Persona with CTO Charles Yeh to tackle this problem, with the mission to be the identity layer of the internet. Rick and his team are working toward making the internet a safer place by providing a customized solution that takes into account user base, regulatory requirements, appetite for risk and unique verification requirements. Persona is backed by Index Ventures and Coatue and serves a wide range of industries, with customers including Square, Sonder, Brex, Gusto, Coursera and Toast.

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