Our economy is struggling to recover from the pandemic. Companies are understaffed, and the cost of doing business is rising. Against this backdrop, Congress is advancing its latest anti-tech legislation, the INFORM Consumers Act, which threatens to stifle small businesses’ recovery by introducing new regulations on online sellers and marketplaces.
During the pandemic, online marketplaces such as Amazon, eBay, and Etsy helped millions of small businesses stay alive. For some, this was their existing e-commerce activity and, for others, a new necessity. But for all that took advantage, online marketplaces were a lifeline. In 2018 alone, online marketplaces provided more than $145.1 billion in economic value to small businesses — a number that certainly increased during the pandemic.
The INFORM Consumers Act was introduced to combat online counterfeiting. Proponents argue that anonymous accounts are enabling online sales of counterfeit and stolen goods. As a resolution, the bill would require “high-volume” sellers, defined as those with 200 transactions a year and $5,000 in sales, to disclose personal data in their public listing — including their full legal names and business address.
The new law would also require marketplaces to collect and verify this data, including collecting a government-issued photo ID, a government-issued record verifying business information, and a business tax identification number. Failure by a seller to provide this information will result in the marketplace suspending the seller’s account.
With this overly broad definition of “high-volume” sellers, millions of small businesses and individual sellers will be forced to disclose their personal information. Sellers with an average of $100 in sales per week for a year will meet this arbitrary threshold.
These requirements are particularly problematic for artists selling their work on Etsy or Amazon Handmade, vintage record sellers on eBay, and countless others who work from home and would suddenly be classified as high-volume sellers and would be required to disclose their home addresses. Angry customers, burglars looking for a treasure trove of merchandise, and other nefarious individuals will now have access to sellers’ addresses. While sellers like this can apply for an exemption, they are still being put at risk. Their safety would be handed over to bureaucrats to decide whether or not they qualify.
While putting small sellers at risk, the legislation does little to deter sophisticated criminals and counterfeiters. Online marketplaces rigorously enforce policies and practices to deter criminals and prevent consumers from being swindled. Most major sites have reporting mechanisms to identify bad actors and return policies that ensure sales integrity. In 2019, Amazon proactively blocked more than 2.5 million suspect accounts. Etsy removed or disabled 470,533 bogus listings.
But the bulk of counterfeiting comes from offshore marketplaces. Requiring offshore sellers to disclose their identity and location will almost certainly not cause them to change their business practices, nor will it change the buying habits of U.S. consumers who knowingly purchase knockoff goods.
Fifteen state legislatures have rejected INFORM-style bills with proposals for disclosing online sellers’ private information to combat crime this year. Only one state, Arkansas, where Walmart holds considerable influence and is leading the charge against its online marketplace competitors, enacted such laws.
Online marketplaces appeal to small businesses and entrepreneurs because they enable small sellers to reach a global audience with an incredibly low barrier to entry. The INFORM Consumers Act raises that barrier and raises costs by adding new compliance requirements on sellers and marketplaces. These will disproportionately hurt small sellers that barely pass the arbitrary threshold for “high-volume sellers.”
The crusade against Big Tech in Congress will inevitably hurt America’s small businesses when they need the government’s help, not more red tape and ill-conceived policies. Online marketplaces helped millions of people survive during the pandemic. They are vital to our economic recovery and should be free from unnecessary regulation that would put small businesses at risk.
Jake Ward is the president of the Connected Commerce Council.
