INFORM Me When It’s Over

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Among other depressing developments, 2020 saw the introduction of the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM) in both houses of Congress. The bill seeks to thwart sales of counterfeit and stolen items online by third parties, but platforms are already working to solve those problems for consumers. Regulations would likely do more harm than good.

The INFORM Act would force Amazon, eBay, and the like to verify the government ID, tax ID, bank account, and contact information of all their third-party sellers that make at least 200 sales amounting to $5000 or more in one year. Platforms would also be obligated to make that information available to customers.

Just as there is a certain amount of fraud in bricks and mortar retail, there is also fraudulent activity online. But a lack of perfection shouldn’t be the rule for when to regulate. Market failure should be the only justification for government intervention.

So, is there market failure for fraud among third-party sellers online?

Retail platforms that host third party sellers have every incentive to protect their reputations by protecting their customers. eBay has won awards for its cooperation with rights holders to address the sales of fakes online. Amazon is the nation’s largest online retailer and Americans rank the company among the most trusted brands. That trust is a competitive advantage that Amazon saw fit to spend $500 million protecting in 2019. The retail platform also devoted the efforts of 8,000 employees to combat these problems on its platform last year. The company vets new third-party sellers, monitors their offerings, and proactively notifies and even refunds consumers when fraud has been detected. Amazon offers a Brand Registry program, a Transparency service, a Counterfeit Crimes Unit, and other protectoins the company has instituted on its own.

All of this appears to be money well spent because, according to testimony Amazon representatives gave to the House Committee on Energy and Commerce in March, they prevented 2.5 million suspected bad-actor accounts from starting to sell in their online stores, blocked 6 billion suspected bad listings from appearing, and blocked and repressed 100 suspected fake reviews last year. All of this benefits Amazon in preserving its good name, but it also benefits consumers by protecting them from fraudulent items and information.

Market solutions are already working to protect consumers. A regulatory bill is not needed.

But worse than being repetitive, the INFORM Act may be harmful. The unintended consequences of the bill include security and privacy concerns with the gathering, storing, and sharing with customers of potentially sensitive information. The best intentions don’t prevent the inherent tension between verification and privacy. There’s also a chance that these compliance costs could act as a barrier to entry for the next, but still small, eBay or Amazon. The big platforms can afford to comply, but the new guy might find the regulatory hoop cost prohibitive.

Better to let market forces compete for consumers by catering to their preferences. It’s already happening to combat fraud online. Let’s hope Congress doesn’t get in the way.