The Economic Standard: Congress Misses the Mark on the INFORM Act

On March 23, 2021, a bipartisan group of U.S. Senators led by Dick Durbin (D-IL) and Bill Cassidy (R-LA) introduced the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act. If the INFORM Act becomes law, it would “direct online retail marketplaces…to authenticate the identity of “high-volume third-party sellers” and “ensure that consumers can see basic identification and contact information for high-volume third-party sellers.”

While the principle of enhancing transparency for consumers and vetting third-party sellers represents good policy, the INFORM Act could inflict considerable harm on both consumers and small businesses. Although the INFORM Act should be rejected in its current form, Congress should not shy away from its duty of protecting consumers from sellers exploiting third-party e-commerce sites from malfeasance. Unfortunately, the INFORM Act only adds bureaucracy and reduces incentives for individuals to engage in online commerce.

Under the INFORM Act, a third-party vendor would be classified as a high-volume seller if they “entered into 200 more…sales or transactions” in a twelve-month period. Once classified as a high-volume seller, they would be forced to provide consumers with their full name, business address, vendor manufacturers, imports, or resells products and consumer information.

Additionally, under the Act, vendors would be forced to provide the online e-commerce platform with verified bank account information, a government-issued photo ID, a government-issued record verifying business information, and a business tax identification number. This information must be provided in two business days.

In a statement commenting on the bill’s introduction, Senator Thom Tillis stated these provisions would stop “criminal actors” from selling “dangerous counterfeit goods to unsuspecting Americans.”

One of the most significant flaws in the INFORM Act is its “high-volume seller” classification. At only 200 transactions each year, the low bar established for “high-volume sellers” would potentially draw thousands of small businesses into complying with onerous regulations the bill sets forth. Etsy reported its sellers have an average of 20 sales each month, putting at least half of its 4.3 million American vendors well above the 200 transaction limit set out by the INFORM Act.

Furnishing the additional information as required by the INFORM Act would undoubtedly cause an increase in compliance costs for vendors. While the exact additional compliance costs are unknown, many small businesses simply do not operate on a large enough profit margin to absorb the cost of complying with a high-volume seller designation. Estimates suggest sellers on Etsy only averaged $537.50 in revenue each month. This revenue, however, does not include the costs of manufacturing or shipping.

The added compliance costs combined with limited revenues generated will disincentivize small vendors from scaling their businesses. Facing increasing costs for simply growing, any rational small vendor is unlikely to stop selling before the limit and avoid the additional costs associated with complying with new regulations.

If small vendors cannot absorb the increased compliance costs that will undoubtedly occur due to the INFORM Act, they would be forced to stop selling their goods online to remain under the 200-transaction limit or be forced to raise prices on their products.

These outcomes are bad for vendors who have a reduced ability to sell their products and bad for consumers who will face reduced access to goods and higher prices for the goods they presently enjoy.

Failing to provide the required information within the required two-day limit could also severely affect small businesses. The INFORM Act directs platforms such as Etsy, Amazon, or eBay who fail to supply the required information to be suspended until the information is furnished. For small vendors, who generally do not devote their entire working day to their online stores, this short turnaround time could be profoundly damaging as a suspension for any period can cause lost sales.

While the INFORM Act’s objective to enhance transparency for consumers should be applauded, in its current form, the bill will only harm consumers and small vendors who depend on online platforms to sell their products. In its current form, the INFORM Act would only penalize the millions of small online vendors and disincentivize them from growing and providing goods to consumers.

This piece was published in The Economic Standard

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