Reforms to INFORM – States Should Pause and Evaluate the Federal Law’s Impact First
In 2022, the U.S. Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, also known as “the INFORM Act”, a bipartisan bill that requires online marketplaces to disclose and verify the identity of its sellers. The law was enacted amid concerns about the online sale of counterfeit and unsafe products in addition to anecdotal reports of surges in “retail shrink” (when a retailer has fewer items in stock than its recorded inventory, largely associated with employee theft, shoplifting, fraud, product damage, or administrative errors) and organized retail crime, or “ORC” (joint operations by more than one person or entity to steal large volumes of goods from retailer). These reports were contested and later revealed to be inaccurate, retracting claims that ORC accounted for nearly half of all inventory losses in 2021 after finding that incorrect data was used for analysis.
The INFORM Act is a complex piece of legislation. While CCIA President and CEO Matt Schruers ultimately praised the bill for its ability to build more trust between sellers and consumers online, Schruers also raised concerns about a previous version of the INFORM Act’s proposed exemption of offline sellers from many of its obligations, which would have targeted online retailers disproportionately. Fortunately, the bill was eventually amended to a more consensus proposal.
The INFORM Act just went into effect on June 27, 2023, however already several states are considering legislation to impose additional requirements in addition to those already included under the law, or to modify existing ones. These state-level alterations risk undermining the certainty that sellers currently benefit from under one, nation-wide, federal law.
Both brick-and-mortar and online marketplaces alike share an interest in maintaining consumer confidence that products are authentic and safe. While the INFORM Act alone likely cannot solve all issues associated with ORC, it is one approach that ultimately garnered support of online and traditional offline marketplaces [1, 2]. However, any further approaches must ensure the stability of the market for online sellers rather than making it a regulatory target. The reality is that ORC and retail shrink are industry-wide problems that must be addressed online and offline, but e-commerce is not to blame and pursuing overly-burdensome regulation for online sellers is not the solution. Digital technology and e-commerce are key supports for small and medium-sized businesses (SMBs). In fact, multiple pieces of research highlight a direct link between growth of retail SMBs and increased adoption and use of digital and e-commerce technology. [1, 2]
Retail shrink and organized retail crime cannot be meaningfully addressed by piecemeal legislation at the state level that overly burdens online marketplaces operating across state and national borders. Furthermore, uprooting the current regulatory certainty under federal law is likely to adversely impact SMBs as they struggle to keep up with constantly evolving and diverging state requirements.
Nevertheless, California and Georgia are considering legislation on this topic, and it is critical for lawmakers to understand how this would negatively impact businesses while doing little to address and reduce the incidence of organized retail theft. Further, if such laws were enacted this would open the door for other states to continue moving goalposts for compliance.
In Georgia, the proposed measure (SB 472) would amend the definition of “high-volume third-party seller” in several ways. First, the definition would no longer require that payments be processed by the online marketplace or a third party, and seemingly would now capture transactions made off the online marketplace. Further, by adjusting the definition of “high-volume third-party seller” to apply to offline transactions, this creates an unenforceable framework as an online marketplace would not have any meaningful way of tracking sales that were initiated online but completed offline. For example, a college student may find a good deal through an online marketplace for a textbook, but meet the seller in-person and pay for the book in cash, or via another application, such as Venmo, PayPal, or Cash App.
California’s proposed legislation (SB 1144) contemplates similar concerning provisions. At the same time, the legislature is considering other legislation (SB 982) to extend existing law related to ORC indefinitely. Under current California law, a person can be found guilty of organized retail theft, punishable as a misdemeanor or a felony, but only until January 1, 2026. While it is important to consider broader criminal justice consequences in a given community, it is worth examining how to hold bad actors accountable and discourage the activity from occurring in the first place.
State lawmakers should stop looking to pass legislation to expand definitions and requirements under the federal INFORM Act, and give the new law time to work. The law was never intended to be a silver bullet, this is a complex problem that requires a more nuanced approach. Instead of attempting to reshape federal law, states should consider refocusing efforts on potential updates to their own statutes or procedures. For instance, states could create and fund organized retail crime task forces who would be better equipped to understand the local dynamics contributing to the issues. These task forces could also work hand-in-hand with brick-and-mortar retailers to implement best practices to minimize the ability for bad actors to exploit and steal from such retailers.
Further evidence is needed to examine the impacts of the INFORM Act before state lawmakers rush to enact additional measures to revise its current provisions. The law strengthens trust between consumers, sellers, and online marketplaces, however state efforts to alter INFORM would likely create a patchwork of constantly evolving laws that would erode regulatory certainty – an impact that would undo the very trust the law is intended to promote within the business community.
