Congress Just Passed a Landmark Anti-Fraud Law for Online Marketplaces

How Will This Play Out for Marketplaces and Sellers?

Last month, the US Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Consumers Act), intending to add more transparency to online transactions and deter criminals from selling stolen, counterfeit, or unsafe items through online marketplaces. The INFORM Act places stringent new requirements on online marketplaces, which must comply or face fines of up to $50,000 per violation.

To comply with the new law, marketplaces must complete five steps for all “high-volume” third-party sellers. (Note: the definition of “high volume” is actually low – 200 transactions and $5000 in revenue over one year.)

1. Collection: collect bank account information, contact information, and a Tax ID number from sellers.
2. Verification: verify the information they get from sellers. They also must require sellers to keep their information current and to certify it as accurate at least once a year.
3. Disclosure: For sellers that meet a certain level of sales on a platform, marketplaces must disclose in the sellers’ product listings or order confirmations specific information about the seller.
4. Suspension of non-compliant sellers: suspend sellers that don’t provide information the law requires.
5. Reporting mechanism: provide a straightforward way for consumers to report suspicious conduct on sellers’ product listings.

The law, which took effect on June 27, 2023, may not work as well as intended. While it may seem reasonable to require marketplaces to collect (and verify) bank account information, tax ID numbers, and contact information from online sellers, in reality this is a lot more complicated than it sounds. Verifying that sellers’ information is legitimate is equivalent to “identity proofing” hundreds or thousands of businesses and burdens online marketplaces significantly.

Looking at Amazon as an example, the enormous effort required to verify sellers becomes clear. Amazon’s proofing procedures include calling or texting each seller's phone number, requiring sellers to send a utility bill to confirm their physical address, and sending postcards containing a unique verification code to confirm the seller's address through the mail. In some cases, Amazon requires sellers to participate in in-person video interviews to verify their details.

While Amazon obviously has the money, resources, and influence over its sellers, many smaller marketplaces will have no choice but to raise fees to cover the cost of compliance. Sellers may begin to abandon smaller marketplaces because they cannot afford to do business with them. Over the long term, as costs rise and sellers become scarce, many smaller marketplaces may be driven out of business, reducing competition and consumer choice.

A bigger question is will the INFORM Act help marketplaces reduce fraud. In the short run, the answer is probably yes, because it will be harder for deceitful sellers to avoid identification. In the long run, the efficacy of the law is questionable. Identity proofing is not permanent. Because of “drift,” proofing loses its accuracy with each passing day. Having sellers “certify” the correctness of their information annually does not meaningfully address this concern.

Perhaps the biggest vulnerability of the INFORM Act is the sophistication and ingenuity of today’s cybercriminals and crime syndicates. With millions of stolen credentials available online at low prices, there are very low barriers to entry for creating fake or stolen credentials for sellers. In fact, the INFORM Act may make it more lucrative for criminals to sell “validated” marketplace credentials, which will now be in high demand.  

Can technology help solve this problem? There is a wide availability of identity proofing solutions, but these solutions can be expensive, especially for smaller marketplaces. And sellers who are repeatedly required to prove their identities will become frustrated with the friction this creates. In an ideal world, identity proofing would only be required when the risk of fraud is high, such as when the likelihood of fake or stolen credentials is detected.

To learn more about how Verosint delivers “adaptive identity proofing” to lower the cost and friction of identity proofing, Adaptive Identity Proofing

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