• The Inform Act, a bipartisan bill that takes effect Tuesday, requires online marketplaces to disclose and verify the identity of its sellers to deter the sale of stolen, counterfeit or harmful products.
• The bill came after retailers and trade groups lobbied Congress and blamed online marketplaces, such as eBay and Amazon, for what they called a surge in retail theft.
• Online marketplaces that don't comply with the law could face more than $50,000 in fines for each violation.

The Inform Consumers Act, a new law that aims to curb organized retail theft and the sale of counterfeit and harmful products on online platforms, takes effect Tuesday as more retailers blame theft as a reason for lower profits. 

The new law requires online marketplaces, such as Amazon and eBay, to verify and share information on third-party sellers that handle a high volume of transactions on their platforms in an effort to deter bad actors from selling stolen or harmful goods.

If the companies fail to get in line, they could face more than $50,000 in fines for each violation.

The bipartisan legislation, which stands for Integrity, Notification and Fairness in Online Retail Marketplaces, passed in December as part of an omnibus spending bill, more than a year after it was introduced by Reps. Jan Schakowsky, D-Ill., and Gus Bilirakis, R-Fla.

"The goal of the INFORM Consumers Act is to add more transparency to online transactions and to deter criminals from acquiring stolen, counterfeit, or unsafe items and selling them through those marketplaces," the Federal Trade Commission, which will be tasked with enforcing the law along with state attorneys general, said on its website. 

"The Act also makes sure online marketplace users have a way to report suspicious conduct concerning high-volume third party sellers."

The law comes after trade associations and retailers lobbied Congress about an alarming uptick in retail theft that they say was driven by lax regulations governing third-party sellers and verification processes on online platforms. They claim organized crime groups steal merchandise from stores and then resell it on online marketplaces, typically at a lower amount than the sticker price.

Many experts say organized retail theft has grown alongside the rise of online shopping, which boomed during the Covid pandemic and became the primary way consumers shopped.

During the second quarter of 2020, e-commerce sales in the U.S. accounted for 16.1% of total retail sales and reached $211.5 billion, a 44.5% increase from the prior-year period, according to Census data. E-commerce growth in the U.S. has since leveled out, but its share of sales has remained consistent.

In the first quarter of 2023, e-commerce in the U.S. accounted for 15.1% of total retail sales, and reached $272.6 billion, a 7.8% jump from the year-ago period.

While stolen or counterfeit goods make up a small fraction of those transactions, retail groups and law enforcement officials have increasingly called on legislators to address the problem. They've said it's been difficult to catch bad actors who sell stolen goods online because their identities were shielded.

Criminals have been able to operate with "complete anonymity using fake screen names and fake addresses," but the Inform Act will change that, Lisa LaBruno, senior executive vice president of retail operations at the Retail Industry Leaders Association, told CNBC.

"Under INFORM, online marketplaces can no longer turn a blind eye to criminal actors using their platforms to sell stolen and counterfeit goods. The FTC and state attorneys general will be empowered to hold these platforms accountable, and consumers will also have their own reporting mechanism to flag suspicious activity," said LaBruno. "For retailers, INFORM's implementation means we have more support and partners in the fight against organized retail crime."

When the bill was first introduced, it faced criticism for being overly broad and burdensome to small businesses. In a December blog post, eBay said it spearheaded efforts to modify the bill so it strikes "an appropriate balance to increase transparency and safety for consumers online while also protecting seller privacy."

"This compromise legislation avoids a patchwork of state laws and has broad support from consumer groups, retailers, and law enforcement," eBay wrote in the post.

What does the law require online marketplaces to do?

Online marketplaces are now required to collect, verify and disclose certain information about third-party sellers that have high transaction volumes on their platforms. Many of the online marketplaces subject to the legislation are national, household names. But smaller, more niche platforms with relevant sellers and volume are covered, as well. 

The rules apply to sellers that had 200 or more separate sales or transactions and $5,000 or more in gross revenue in any continuous 12-month period during the past 24 months, according to the FTC. The disclosure requirements are steeper for sellers that have annual gross revenues of $20,000 or more on a particular marketplace.

Digital marketplaces will now be required to collect and verify data like contact information, bank account details, tax ID numbers or tax and other government records. The requirements can change based on whether the seller is an individual or corporation, or based on how much business the vendor does on the marketplace.

Marketplaces must include that information either in the sellers' product listings or in order confirmations, and suspend sellers if they fail to disclose the required information. The marketplaces also have to provide a clear way for consumers to report suspicious conduct on product listings from relevant third-party vendors. 

How will the law be enforced?

The FTC and states will share enforcement authority of the Inform Act. 

Marketplaces found to have run afoul of the law could face civil penalties of $50,120 per violation. 

State attorneys general and other state officials can also file actions in federal court that could result in higher penalties from damages, restitution or other compensation, the FTC said. 

It's not clear how the law will be enforced, or if the FTC will actively seek out violations or only respond to complaints made through the new reporting systems. 

The Buy Safe America Coalition, a group that advocates against the sale of stolen or counterfeit goods, sent a letter to the FTC this month urging the agency to "take immediate action" once the Inform Act becomes law. 

"While our respective organizations represent a diverse group of industries and interests, we are singularly united in our belief that INFORM must be fully enforced by the FTC (and the state AGs) to protect consumers and businesses from what has become a serious threat to consumers, honest businesses, and a fair and healthy marketplace," the letter, signed by retailers including Gap, Home Depot, Walgreens and Best Buy, states. "We strongly encourage the FTC to act quickly and publicly to rigorously enforce the law."

The group also offered its assistance to the FTC. 

A week before the measure took effect, the FTC sent a letter to 50 online marketplaces about their new obligations under the law and reminded them of the penalties associated with violations.

It urged the groups to communicate the new requirements to the sellers they work with and advise them on how to avoid "potential imposters" that could trick them into sharing personal or account information. 

"The Commission will enforce the Act to the fullest extent possible and will collaborate with our state partners to hold online marketplaces accountable," Samuel Levine, the director of the FTC's Bureau of Consumer Protection, said in a statement.

In a statement, a spokesperson for eBay said the company is "fully prepared" to comply with the new law.

"eBay fully supports transparency and is committed to a safe selling and buying experience for our customers," the spokesperson said. "We were proud to support passage of the INFORM Act to create a national standard to protect consumers from bad actors who seek to misuse online marketplaces, while also ensuring important protections for sellers."

Meta, Facebook's parent company, told CNBC it has already rolled out a business verification tool for shops and sellers that meets the relevant threshold. 

Amazon has notified high-volume sellers that they must verify their information before the law takes effect in order to avoid getting kicked off the platform or having their funds frozen.

— Additional reporting by CNBC's Annie Palmer.