Ecommerce Marketplaces Fight CA, GA Seller Verification Legislation

UPDATE 7-1-24

The U.S. District Court for the Northern District of Georgia has halted Georgia’s INFORM Act amendments in its Act 564 from going into effect.

California and Georgia are working to expand marketplace verification requirements beyond the INFORM Consumers Act with new laws that would also apply to classified ad sites that facilitate transactions where payments are made off site.

The California bill was fast-tracked by Democratic lawmakers with committees voting today to include the measure in a package of 14 bills aimed at combating organized retail crime and theft being sent to Governor Gavin Newsom in a few weeks.

If passed, the bill would require marketplaces like eBay and Nextdoor to start collecting bank accounts and tax identification numbers from high-volume sellers who advertise online, even when they collect payments offline.

The rules would apply to sellers who make at least $5,000 profit and engage in at least 200 transactions in a year.

Excerpt from California SB 1144:

Existing law generally defines a “high-volume third-party seller,” for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified.

Existing law defines an “online marketplace,” for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a “high-volume third-party seller,” for those purposes.

Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace.

The bill would also revise the definition of “online marketplace” by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Proponents, including district attorneys and some big box retailers, said the data collection proposal would shut down organized theft rings seeking to resell stolen goods and close a loophole in existing laws that don’t require platforms to track offline transactions.

Critics say the new requirement is so broad and vague that some platforms would have to start collecting sensitive information from all users, harming California’s e-commerce businesses.

David Edmonson of technology advocacy group TechNet said, “This is basically going to force businesses out of California. I imagine most sellers will have to think long and hard about whether or not they want to provide that information to the online marketplace just to be able to sell, you know, household products.”

Nathan Garnett, general counsel of OfferUp said the proposal would benefit big box retailers at the expense of classified ad sites and that OfferUp's 11 million users in California would have to hand over their personal information before they could list something like a used coffee table or an old truck on the platform.

Tech industry lobbying group NetChoice is also taking legal action on behalf of Amazon, eBay, Google, Facebook, Craigslist and other companies it represents to try to stop similar legislation from being enacted in Georgia.

A Georgia law passed in 2022 was largely responsible for spurring Congress to take up the issue and pass federal legislation in the form of the INFORM Consumers Act that requires marketplaces to collect, verify and in some cases disclose information of high volume sellers - but importantly it only applied to transactions where the marketplaces actually process the payments.

What Ecommerce Sellers Need To Know About INFORM Consumers Act

The INFORM Consumers act requires marketplaces to verify & in some cases disclose seller info - here’s what you need to know!

Value Added ResourceLiz Morton

Now, Georgia is set to extend their law further to apply to situations where payments may be handled offline, just like the California bill.

Governor Brian Kemp signed the “Combating Organized Retail Crime Act” into law in early May, after it passed through the Georgia General Assembly unopposed, and it is set to take effect July 1.

However, NetChoice has filed a lawsuit against Georgia Attorney General Chris Carr, claiming the law is unconstitutional and unenforceable because it conflicts with and is preempted by the federal INFORM Act.

NetChoice says it supports the federal law, which applies to online marketplaces that process sales, but that Georgia’s new legislation goes too far by requiring online marketplaces to get information from the third-party sellers whether the sales go through the marketplace or not, which would include sites like Craigslist, Facebook Marketplace and Nextdoor, which “merely serve as forums for classified advertisements.”

Chris Marchese, director of NetChoice’s litigation center, said “If you are a small business and you use online ads to reach potential consumers throughout the state of Georgia, the platform that hosts your advertising would then potentially have the obligation of verifying all of your in-person or off-platform transactions. It is impossible for those websites to comply with that requirement. And as a result, they would probably just shut down the opportunities to advertise.”

How would your online buying and selling be impacted if classified ad sites like Facebook Marketplace, Nextdoor, and OfferUp are required to collect this kind of personal information? Let us know in the comments below!