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

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The Inform Consumers Act, a new law aimed at curbing organized retail theft and the sale of counterfeit and harmful products on online platforms, came into effect on Tuesday as more retailers blamed the theft due to a decline in profits.

New laws require online marketplaces such as amazon and ebayverifying and sharing information on third-party sellers that process a high volume of transactions on its platform to deter bad actors from selling stolen or harmful merchandise.

If these companies fail to comply, they could face fines of more than $50,000 per violation.

The bipartisan legislation representing integrity, notice and fairness in the online retail marketplace was passed in December as part of an omnibus spending bill, more than a year after being introduced by Reps. Jan Schakowsky and Gus Bilirakis, Democrats of Illinois, R-Fla. .

“The goal of the Consumer Information Disclosure Act is to increase the transparency of online transactions and to deter criminals from obtaining stolen, counterfeit or unsafe items and selling them through these marketplaces,” said the Federal Trade Commission, which enforces the law. The state attorneys general said on their website.

“The bill also ensures that users of online marketplaces are able to report suspicious behavior regarding high-volume third-party sellers.”

The law comes after trade associations and retailers lobbied Congress over an alarming rise in retail theft, which they say is due to lax oversight of the verification process for third-party sellers and online platforms. They claim organized criminal gangs steal goods from stores and resell them on online marketplaces, often for less than the listed price.

Organized retail theft has grown along with the rise of online shopping, which has flourished during the coronavirus pandemic and has become the primary way consumers shop, many experts say.

Census data shows that in the second quarter of 2020, U.S. e-commerce sales accounted for 16.1% of total retail sales, reaching $211.5 billion, an increase of 44.5% over the same period last year. Since then, e-commerce growth in the US has plateaued, but its share of sales has remained stable.

In the first quarter of 2023, U.S. e-commerce accounted for 15.1% of total retail sales, reaching $272.6 billion, a year-on-year increase of 7.8%.

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

Lisa LaBruno, senior executive vice president of retail for the Association of Retail Industry Leaders, told CNBC that criminals have been able to conduct their crimes “with complete anonymity using false online names and false addresses,” but the Information Act will change that. a status quo.

“According to INFORM, online marketplaces can no longer turn a blind eye to criminals using their platforms to sell stolen and counterfeit goods. The FTC and state attorneys general will have the authority to hold these platforms accountable, and consumers will have their own reporting mechanisms to flag suspicious activity,” Labruno said. “For retailers, the implementation of INFORM means we have even more support and partners in the fight against organized retail crime.”

When the bill was first introduced, it was criticized for being too broad and burdening small businesses. In a blog post in December, eBay said it was spearheading an effort to amend the act to strike the “right balance” of “enhancing transparency and safety for consumers online 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?

On October 26, 2021, the doors of a pharmacy and convenience store in New York City were used to lock items.

Spencer Pratt | Getty Images

Online marketplaces are now required to collect, verify and disclose certain information about third-party sellers with high transaction volumes on their platforms. Many of the online marketplaces subject to the legislation are national household names. But also covers smaller, more niche platforms with relevant sellers and volumes.

According to the FTC, the rules apply to sellers who have made 200 or more individual sales or transactions in any 12 consecutive months in the past 24 months with gross revenue of $5,000 or more. Disclosure requirements are stricter for sellers with gross annual revenue of $20,000 or more in select marketplaces.

Digital marketplaces will now require the collection and verification of data such as contact information, bank account details, tax ID numbers or tax and other government records. These requirements may vary depending on whether the seller is an individual or a company, or depending on the amount of business the seller has in the marketplace.

The marketplace must include that information in a seller’s product listing or order confirmation, and can suspend sellers if they fail to disclose the required information. Marketplaces must also provide consumers with a clear way to report suspicious behavior in product listings from relevant third-party vendors.

How will the law be enforced?

The FTC and the states will share enforcement powers under the Information Act.

Marketplaces found to be violating the law could face civil penalties of $50,120 per violation.

State attorneys general and other state officials could also bring the case in federal court, which could lead to higher penalties in terms of damages, restitution or other compensation, the FTC said.

It’s unclear how the law will be enforced, or whether the FTC will actively seek violations or simply respond to complaints filed through the new reporting system.

The Safe Buy America Coalition, an organization advocating against the sale of stolen or counterfeit goods, sent a letter to the FTC this month urging the agency to “act immediately” once the Tell Me Act becomes law.

“While our respective organizations represent diverse industries and interest groups, we share the belief that INFORM must be fully enforced by the FTC (and state AGs) to protect consumers and businesses from serious threats to consumer, honest business and a fair and healthy marketplace,” the letter, signed by retailers, includes gap, The Home Depot, walgreens and Best Buy, state. “We strongly encourage the FTC to act swiftly and publicly to strictly enforce the law.”

The group also provided assistance to the Federal Trade Commission.

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

It urges these groups to communicate the new requirements to sellers they work with, and offers advice on how to avoid “potential impostors” who could trick them into sharing personal or account information.

“The Commission will do its best to enforce this bill and will work with our state partners to hold online marketplaces accountable,” Samuel Levin, director of the FTC’s Bureau of Consumer Protection, said in a statement.

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

“eBay fully supports transparency and is committed to providing a safe selling and buying experience for our customers,” the spokesperson said. “We are proud to support the passage of the Information Act to set national standards and protect consumers from bad actors seeking to abuse online marketplaces, while ensuring important protections for sellers.”

YuanFacebook’s parent company told CNBC it has rolled out a business verification tool for stores and sellers who meet relevant thresholds.

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

— Supplementary report Anne Palmer on CNBC.


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