Criminals and fraudsters use online marketplaces—platforms like Amazon, eBay, and Etsy that aggregate products from multiple third-party sellers—to sell stolen, defective, and counterfeit goods under a cloak of anonymity. By disguising their true identity behind a fake seller profile, bad actors can evade criminal and civil prosecution. To address this problem, Congress is considering legislation that would require online marketplace to verify the identity of sellers and disclose this information to potential buyers. Unfortunately, as drafted, the legislation would do little to prevent bad actors, but it would hurt online marketplaces and legitimate sellers.
Introduced in March 2021 by U.S. Senators Dick Durbin (D-IL) and Bill Cassidy, M.D. (R-LA), S.936, The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act, would direct online marketplaces to verify high-volume third-party sellers by acquiring the seller’s government identification, tax identification, bank account information, and contact information. The bill defines high-volume third-party sellers as vendors who have made 200 or more discrete sales in a 12-month period amounting to $5,000 or more in revenue. The legislation also instructs online marketplaces to ensure that their high-volume third-party sellers disclose to consumers their name, business address, email address, and phone number. The bill also calls on online marketplaces to allow customers to report suspicious marketplace activities such as the posting of suspected stolen, counterfeit, or dangerous products.
The biggest problem with the legislation is it will do little to deter most bad actors. Criminals who are willing to sell stolen goods online are almost certainly willing to also use a stolen or fake identification to establish a seller account. With the Federal Trade Commission (FTC) documenting nearly 1.4 million reports of identity theft in the United States, there is no shortage of opportunity. Indeed, many gig economy apps have discovered that remotely verifying the identity of individuals on their platforms is complicated and error-prone, especially when people are actively searching for ways to cheat the system. If bad actors can easily evade these verification checks, then buyers will not benefit from the legislation.
Bad actors can also exploit other loopholes to avoid accountability. Even with the INFORM Consumer Act, a criminal could sell 199 stolen items on an online platform, without needing to pass an identity verification check, at which point they could move on to a new seller profile. And sellers who are using stolen credentials can likewise create a new account if they are shut down by an online marketplace by simply using a new name. More sophisticated criminals can even take advantage of lax state laws that allow anyone to create shell corporations with little transparency on who is behind the curtain.
The legislation would also hurt online marketplaces by forcing them to adhere to a new set of potential expensive regulations on how to collect, verify, and disclose information about sellers on their platforms. Most online marketplaces already have systems in place to proactively detect illicit activity on their platforms, such as by using machine learning to automatically detect suspicious activity. And they have a strong incentive to improve these so that buyers trust their sites to make purchases. For example, last year Amazon announced that it began testing a live video verification process for its sellers to minimize the risk of fraudulent accounts. Instead of allowing them to continue to invest in innovative technologies to minimize this risk, this legislation would force them to divert resources to compliance.
Moreover, some of the requirements in the INFORM Consumers Act would make online marketplaces worse for consumers. For example, the legislation would require online marketplaces to provide consumers the phone number and email address of the seller. Most online marketplaces require buyers and sellers to communicate using their platform to protect consumers from fraud, harassment over negative reviews, and unsolicited marketing. By providing this information, this legislation would open the door for off-platform communications which the online marketplace can no longer monitor.
Finally, the INFORM Consumers Act would hurt legitimate sellers. No verification process is perfect, and false negatives can keep legitimate sellers offline. For example, ID.me, a provider of an online identity verification service used by a number of government agencies, has acknowledged that 10 percent of legitimate identity verification attempts may fail. Legitimate sellers who pose no risk to consumers and have received no complaints could still face a potential account suspension or termination. And forcing online marketplaces to expose the detailed contact information of sellers also allows unscrupulous competitors to unfairly target their rivals.
Online marketplaces are taking steps to identify criminal activity on their platforms and improving their methods as these criminals adopt new techniques to evade detection, so regulating how they do this would only slow them down and not be helpful at this stage. But that doesn’t mean Congress cannot help by tackling some of the underlying issues. First, Congress can back efforts to roll out electronic IDs that would allow individuals to prove their identity online securely. Second, Congress can more aggressively pursue identity theft—which enables criminals to cheat identity verification schemes—such as by retiring the use of Social Security numbers and providing alternatives to credit monitoring after data breaches. Third, Congress can address the issue of shell companies by requiring states to collect and make available to law enforcement, journalists, and others data on their owners and beneficiaries of corporations. Finally, Congress can require online marketplaces to disclose the country of the seller, which can help buyers make decisions about the potential risks that come from buying from foreign sellers, such as an inability to easily pursue damages for faulty products.
While transparency in online marketplace can help consumers make better decisions, such as knowing if they are buying from an overseas seller, this legislation does not strike the right balance. In all, the proposed legislation would burden online marketplaces, hurt sellers, and do little to stop the bad actors—leaving consumers worse off.