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Inform Act goes into effect targeting organized retail theft

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Merchandise locked to prevent theft at a Target, Queens, New York store.

Lindsey Nicholson | Universal Images Group | Getty Images

The Consumer Information Act, a new law that aims to limit organized retail theft and the sale of counterfeit and harmful products on online platforms will take effect on Tuesday as more retailers blame theft as the reason for lower profits.

The new law requires an online marketplace such as Amazon and eBayverify and share information about third-party vendors who process a high volume of transactions on their platforms in an effort to discourage bad actors from the sale of stolen or harmful goods.

If companies fail to come into compliance, they can face fines of more than $50,000 for each violation.

The bipartisan legislation, which stands for Integrity, Notification and Fairness in Online Retail Marketplaces, passed in December as part of the omnibus spending bill, more than a year after it was introduced by Reps. Jan Schakowsky, D-Ill., and Gus Bilirakis. , R-Fla.

“The goal of the INFORM Consumers Act is to add more transparency to online transactions and deter criminals from obtaining stolen, counterfeit or unsafe items and selling them through these marketplaces,” said the Federal Trade Commission, which will be tasked with enforcing the law. along with the top prosecutors, he said on his website.

“The law also ensures that online marketplace users have the ability to report suspicious behavior involving third-party bulk sellers.”

The law comes after trade associations and retailers lobbied Congress an alarming increase in retail theft that this was said to be due to lax regulations governing third-party sellers and verification processes on online platforms. They say organized crime groups steal goods from stores and then sell them on online marketplaces, usually for less than the sticker price.

Many experts say organized retail theft increased along with the rise of online shopping which has boomed The covid pandemic and became the main way consumers shopped.

During the second quarter of 2020, U.S. e-commerce sales accounted for 16.1% of total retail sales and reached $211.5 billion, up 44.5% from the previous year, according to Census data. U.S. e-commerce growth has since leveled off, but its share of sales has remained the same.

In the first quarter of 2023, US e-commerce accounted for 15.1% of total retail sales and reached $272.6 billion, a 7.8% jump from a year ago.

While stolen or counterfeit goods make up a small fraction of those transactions, retail groups and law enforcement officials are increasingly calling on lawmakers to address the problem. They said it was difficult to catch bad actors selling stolen goods online because their identities were protected.

Criminals have been able to operate with “complete anonymity using fake names and fake addresses,” but the Whistleblower Act will change that, Lisa LaBruno, senior executive vice president of retail operations at the Retail Industry Leaders Association, told CNBC.

“Under INFORM, online marketplaces can no longer turn a blind eye to criminal actors who use their platforms to sell stolen and counterfeit goods. The FTC and prosecutors will have the power to hold these platforms accountable, and consumers will also have their own whistleblowing mechanism.” flagging suspicious activity,” LaBruno said. “For retailers, the implementation of INFORM means we have more support and partners in the fight against organized retail crime.”

When the bill was first introduced, it faced criticism for being too broad and burdening small businesses. In a blog post in December, eBay said it was leading efforts to amend the law to strike “an appropriate balance to increase transparency and safety for online consumers while protecting seller privacy.”

“This compromise legislation avoids a patchwork of state laws and has broad support from consumer groups, retailers and law enforcement,” eBay wrote in the post.

What does the law require online marketplaces to do?

Online marketplaces are now required to collect, verify and disclose certain information about third-party sellers who have high transaction volumes on their platforms. Many of the online marketplaces subject to this legislation are national names. However, smaller, more specialized platforms with relevant vendors and volume are also included.

The rules apply to sellers who have had 200 or more separate sales or transactions and $5,000 or more in gross revenue in any continuous 12-month period within the last 24 months, according to the FTC. Disclosure requirements are more stringent for sellers who have annual gross receipts of $20,000 or more in a particular market.

Digital marketplaces will now have to collect and verify data such as contact details, bank account details, VAT numbers or tax and other government records. The requirements may vary depending on whether the seller is an individual or a legal entity, or depending on how many trades the seller makes on the market.

Marketplaces must include this information in either sellers’ product records or order confirmations, and suspend sellers if they fail to provide the required information. Marketplaces must also provide consumers with a clear way to report suspicious behavior on product listings from relevant third-party vendors.

How will the law be enforced?

The FTC and states will share enforcement powers of the Inform Act.

A marketplace found to be in violation of the law could face civil penalties of $50,120 per violation.

Prosecutors and other government officials can also file lawsuits in federal court that could lead to higher punitive damages, restitution or other compensation, the FTC said.

It is unclear how the law will be enforced, or whether the FTC will actively seek out violations or merely respond to complaints filed through the new reporting systems.

The Buy Safe America Coalition, a group that advocates against the sale of stolen or counterfeit goods, sent a letter to the FTC this month urging the agency to “take immediate action” once the Inform Act becomes law.

“While our respective organizations represent a diverse group of industries and interests, we are uniquely united in our belief that the FTC (and state AGs) must fully enforce INFORM to protect consumers and businesses from what has become a serious threat to consumers. , honest businesses and a fair and healthy market,” a letter signed by retailers including Gap, Home Depot, Walgreens and Best buy, states. “We strongly encourage the FTC to act quickly and publicly and consistently enforce the law.”

The group also offered its assistance to the FTC.

A week before the measure went into effect, the FTC sent a letter to 50 online marketplaces about their new obligations under the law and reminded them of the penalties associated with violations.

He urged groups to communicate the new requirements to retailers they work with and advise them on how to avoid “potential fraudsters” who might trick them into sharing personal or account information.

“The commission will enforce the law to the fullest extent possible and work with our state partners to hold online marketplaces accountable,” Samuel Levine, director of the FTC’s Office of Consumer Protection, said in a statement.

In a statement, an eBay spokesperson said the company is “fully prepared” to comply with the new law.

“eBay fully supports transparency and is committed to safe selling and buying for our customers,” a spokesperson said. “We were proud to support the passage of the INFORM Act to create a national standard to protect consumers from bad actors who seek to abuse the online marketplace, while providing important protections for sellers.”

TargetFacebook’s parent company, told CNBC that it has already implemented a business verification tool for stores and sellers that meet the relevant threshold.

Amazon told high-volume sellers that they must verify their information before the law goes into effect to avoid being kicked off the platform or having their funds frozen.

— Additional news from CNBC’s Annie Palmer.

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