If you run an online marketplace, then you already know just how serious a problem marketplace fraud can be — for both your customers and your business.
Fake profiles, fake listings, false advertising, and the sale of counterfeit or stolen goods can all cause serious damage to your reputation and make your customers lose trust in your platform. At best, these issues might make individuals think twice before making a purchase through your business; at worst, they might send them to the arms of your competitors.
The good news is, there are steps you can take to manage marketplace fraud in order to protect your customers. This includes verifying the identity of sellers on your platform and performing ongoing analysis to identify potential fraud rings (both of which we discuss below).
While these steps used to be voluntary, they'll soon be legally required thanks to a new law and a proposed piece of legislation — the INFORM Consumers Act and the SHOP Safe Act. With this in mind, it’s important for any business that runs an online marketplace to understand the new and potential requirements of the laws and begin crafting a plan to get up to compliance in the event that both bills become law.
Below, we take a closer look at both the INFORM Consumers Act and the SHOP Safe Act, outline their requirements, and discuss some steps you can take to address the issue of fraud on your platform.
What is the INFORM Consumers Act?
The INFORM Consumers Act is a law that includes provisions designed to target online marketplace fraud — specifically, the sale of stolen and counterfeit goods. Its full name is the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act. It was signed into law in late 2022 and goes into effect June 2023.
The law requires online marketplaces to collect certain information about sellers earning a certain level of revenue to make it easier for regulators and investigators to investigate suspected fraud.
Requirements of the INFORM Consumers Act
The INFORM Consumers Act is designed to limit and deter sales of counterfeit and stolen products that have been known to happen on popular online marketplaces. It does this by requiring online marketplaces to implement certain policies that make it easier for regulators and enforcement officials to target bad actors if and when fraud is detected.
These requirements include:
- Requiring the online marketplace to collect and verify the contact information, bank account details, and tax identification number of all high-volume third-party sellers. This is defined as vendors who complete more than 200 transactions a year, or who bring in at least $5,000 in gross revenues during the year. Accepted forms of verification include government ID verification, tax document verification, and email/phone verification.
- Requiring the online marketplace to provide consumers with a means of reporting suspicious market activity.
- Requiring sellers grossing at least $20,000 in revenue a year to disclose their name, contact information, and physical address to consumers (though exceptions apply for sellers operating out of their homes).
Failure to meet any of these provisions could open online marketplaces up to enforcement action from the Federal Trade Commission (FTC), which may result in monetary fines and more serious legal ramifications.
What is the SHOP Safe Act?
The SHOP Safe Act is a piece of proposed legislation designed to address the problem of counterfeit goods being sold online. The full name of the bill is the Stopping Harmful Offers on Platforms by Screening Against Fakes in E-commerce Act.
The law would make online marketplaces liable for copyright and trademark infringement in cases where a third party uses their platform to sell counterfeit goods with the potential to harm the health or safety of the customer, such as cosmetics, supplements, and pharmaceuticals. The law outlines steps (discussed below) that the marketplace can take to avoid liability.
The SHOP Safe act has not yet received a vote in either the House or the Senate. As such, it is unlikely to become law in the short term. The bill does enjoy some bipartisan support, however, and some industry experts believe that it could advance in coming months.
Requirements of the SHOP Safe Act
The SHOP Safe Act is designed to reduce the risk of fraud related to the sale of counterfeit goods that have the potential to harm the health or safety of the end consumer. It does this by making online marketplaces liable for trademark and copyright infringement when counterfeit goods are sold through their platforms — unless the marketplace meets certain requirements.
The act would require online marketplaces to:
- Verify certain pieces of seller information, including their address, identity, and contact information. This will make it easier for investigators to enforce the law in cases where counterfeit goods are deemed to have been sold.
- Require all sellers to agree not to use counterfeit marks with goods sold on the platform.
- Design and adopt measures that can be used to prescreen listings in order to identify potentially counterfeit goods. Suspected listings must then be investigated and/or removed.
- Implement policies to remove and ban repeat offenders.
As mentioned above, the law is specifically geared toward the sale of counterfeit goods that might harm a user’s health and wellbeing. This includes, but isn’t limited to, prescriptions, over-the-counter medication, health supplements, cosmetics and beauty aides, and more.
Preparing your business
If you run an online marketplace, it’s important to stay on top of legislation that could impact your industry, such as the INFORM Consumers Act and the SHOP Safe Act. While only the INFORM Consumers Act has been signed into law, the SHOP Safe Act could soon follow, and taking steps now to prepare for its potential requirements is likely in the best interest of your business.
As both laws require verification of sellers, it can be a good idea to consider what verification might look like to your business.
Even if both acts don't become law, you might find that voluntarily implementing certain of their provisions could benefit your business. Embracing identity verification for all users, for example, can make it easier to detect, prevent, and deter fraud on your platform, which in turn can help you provide a better experience to the buyers who frequent your platform. Lower levels of fraud also typically translate into higher levels of trust, which can help you maintain and grow your brand.
And of course, even if the SHOP Safe Act doesn't pass into law, many experts in the e-commerce industry believe that other forms of regulation are inevitable and that they will likely include some (if not all) of the provisions already discussed. Preemptively addressing the most likely requirements will make it easier for you to comply with potential future regulations — and could even serve as a point of differentiation from your competitors.
Here at Persona, we understand the role that identity verification plays in detecting and deterring fraud. We also understand that verification needs can vary significantly from business to business and from use case to use case.
That’s why we’ve designed our Verifications solution to be extremely customizable. You have the freedom to determine the information that you’ll collect from your users, and how you’ll verify this data — whether that includes document verification, database verification, selfie verification, or any combination of techniques.
And if you’re having trouble detecting fraud that may already exist on your platform, our link analysis tool, Graph, empowers you to quickly and easily analyze the different kinds of connections that exist between different user accounts, allowing you to uncover potential fraud much quicker than through traditional review.
Interested in learning more? Start for free or get a demo today.