What marketplaces need to know about the INFORM Consumers Act
As online marketplaces continue to grow, so does the threat of fraud. In 2023, Amazon reported over 700,000 fraudulent seller attempts, and a 2024 study by Trustee Savings Bank indicates that at least a third of Facebook Marketplace listings could be fraudulent.
In response to the rising threat of nefarious sellers, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act — more commonly known as the INFORM Consumers Act — went into effect in 2023 as a framework to address the need for more transparency and accountability in online commerce. Here’s what marketplace operators need to know about the regulatory requirements — and how they can turn compliance into a competitive advantage.
Learn more about Middesk for marketplaces here
What is the INFORM Consumers Act?
The INFORM Consumers Act is designed to ensure safer transactions for buyers and fairer conditions for sellers within online marketplaces. By focusing on high-volume third-party sellers, the act aims to reduce fraud while fostering greater transparency.
Did you know?
"High-volume third-party sellers" are those that have sold 200 or more items and earned $5,000 or more in gross sales via an online marketplace in any consecutive 12-month period over the last 24 months.
Key requirements of the act include:
- Data collection: Marketplaces are required to collect identifying information such as tax ID, business address, and bank account details from high-volume sellers.
- Annual verification: Marketplaces must regularly verify this information to ensure it remains accurate and up to date.
- Consumer reporting requirements: The act also requires that marketplaces provide consumers with a way to report suspicious activity.
For high-volume sellers surpassing $20,000 in annual gross revenues, online marketplaces are also required to disclose key information about them to potential buyers. That information includes the seller’s name or business name, a verified physical address (except in certain cases, like if the seller’s home and business address are the same), and contact details. Ignoring these rules can be risky for marketplace operators: Penalties can come with a price tag of over $50,000 for each violation.
Why the INFORM Consumers Act has broad industry support
Leading marketplaces such as Amazon, eBay, and Etsy voiced strong support for the INFORM Consumers Act as a necessary step toward building safer, more transparent ecosystems. Here’s why:
- Consumer safety: The act helps protect users by reducing the prevalence of fraudulent sellers and unsafe products.
- Marketplace integrity: Adhering to the act enhances trust between buyers and sellers, boosting the health and growth of the marketplace.
- Industry alignment: Major platforms see the act as a way to level the playing field, ensuring all participants operate under the same high standards of accountability.
It’s clear why there’s support for these new standards. They foster trust, ensure safer transactions, and create a more reliable environment for both buyers and sellers.
Challenges marketplaces face in meeting these requirements
While the INFORM Consumers Act sets essential guidelines, compliance always comes with higher expectations. It requires marketplaces to balance the complexity of data verification with the need for operational efficiency and a seamless onboarding experience for sellers.
Some of these hurdles include:
- Volume of sellers: Large marketplaces with thousands or millions of high-volume sellers must collect and verify massive amounts of seller data.
- Customer experience: Marketplaces need to find ways to comply with the regulatory requirements without putting a heavy burden on sellers in the onboarding process.
- Real-time verification: With thousands of new small businesses created each day, marketplaces must ensure they’re not excluding new, legitimate sellers from their platforms simply because they are difficult to verify.
- Fraud evolution: Sophisticated fraud tactics, such as synthetic identities and shell operations, complicate verification efforts.
- Operational costs: Balancing compliance requirements with cost-effective operations is a key concern for many marketplaces.
- Regulatory risks: Non-compliance can result in significant penalties and reputational damage, adding urgency to the need for robust solutions.
Marketplaces that successfully address these challenges stand to gain significant advantages, including enhanced trust from consumers, streamlined operations, a stronger competitive position, and the ability to scale efficiently while maintaining compliance.
You can turn efficient, compliant onboarding into a competitive advantage with Middesk
Middesk provides a seamless, scalable solution to help marketplaces meet and exceed the requirements of the INFORM Consumers Act. Not only does this ensure compliance, but it also enhances the seller experience by reducing onboarding friction, providing clear and consistent processes, and strengthening relationships between sellers and marketplaces.
Here’s how:
- Comprehensive verification: With only a business name and an address, Middesk checks authoritative data sources in real time — including U.S. Secretary of State records and IRS databases — to validate the seller’s information, such as TIN, business name, and physical address.
- Instant qualification: Middesk returns a composite Signal Score in less than a second so that you can immediately and confidently qualify each new seller before they enter your marketplace.
- Custom auto-approval settings: It’s easy to set your approval criteria to support quick, informed decisions, and you can always adjust your policies as needs and acquisition goals change.
With Middesk’s Know Your Business (KYB) and (in partnership with Socure) Know Your Customer (KYC) verification tools, your marketplace can stay compliant and maintain quality control while speeding up seller onboarding and enhancing trust among all market participants.
Ready to make automated compliance your competitive advantage?
Learn more about how Middesk can unlock sustainable growth for your marketplace by downloading “Middesk for Marketplaces.” You can also see our compliant, friction-free seller onboarding platform in action by talking to an expert today.
