Congress Tries To Ram The Ill-informed INFORM Bill Into The Must-pass NDAA

Policy

from the ill-considered-with-ill-effect dept

Congress is at it again, trying to legislate without bothering to understand the problems they are ostensibly trying to fix. This time it’s with the INFORM Consumers Act, S.B. 936, which, instead of debating further, some of its sponsors are trying to ram through as an amendment to the must-pass NDAA. Which itself is a clue that there’s something wrong with this bill, because if the only way to become law is to avoid further scrutiny, then that’s exactly when such scrutiny is needed.

At least this time the proposed bill doesn’t take direct aim at Section 230 or antitrust, and unlike some other bills this one is at least trying to target something resembling an actual policy problem. But as is so often the case with these “let’s make Internet platforms responsible for everything wrong with the world” bills, it still doesn’t actually fix the problem it’s trying to solve.

The problem that this bill is supposedly tackling is that sometimes the products people buy online can be defective or dangerous, but then sometimes consumers can have difficulty finding the seller responsible to try to hold liable for any resulting harm. The apparent goal of the INFORM Consumers Act is to make such sellers more findable and thus more accountable, but (a) it won’t really, and (b) it will create all sorts of other problems that ultimately will hurt consumers (and others) instead.

The bill is flawed both in its concept and its execution. At its core, the essential failing is that instead of directly targeting the wayward vendors concerning Congress, the bill instead aims to conscript online marketplaces into formally policing online sellers, which is itself of dubious effectiveness as a regulatory strategy, let alone of dubious doctrinal consistency regarding how tort law works or of dubious constitutionality regarding how state action works. In particular, the bill wants to obligate all online marketplaces, of every size and stripe (see the definition at Section (2)(e)(4)), to collect seller information (Section (2)(a)(1)), verify it (Section (2)(a)(2)), display it (Section (2)(b)(1)), and then terminate any seller’s account if they are out of compliance (see Section (2)(b)(4)). To the drafters these requirements may seem like small asks, but in practice they are far from it, especially as wrapped up in this overall legislative language.

For one thing, even just asking for all this seller information creates all sorts of privacy problems, particularly for sellers who are individual people, who would have to supply all sorts of personal details, including tax IDs (Section (2)(a)(1)(A)(iii)), which may well be their social security numbers. And then the marketplaces would have to somehow safely store this government-demanded honeypot of deliciously sensitive of personal information that other regulation has actively been trying to deter them from collecting at all. (The House version of the bill, H.R. 5502, at least addresses this concern, albeit with a handwavy, “Nerd harder,” sort of demand of the platforms (see Section (1)(a)(4)).)

Next, policing this information is not something that a marketplace would necessarily have either the resources or competency to do, especially not at the scale the law would demand. Being forced to terminate accounts for inadequate compliance also raises due process concerns for both the marketplace and any legitimate seller so affected. And such terminations are not without consequence, including for consumers who will now have to face higher prices, lack of supply for the products they seek as vendors are driven offline entirely, or even more risk as everyone is now forced to turn to offshore marketplaces not subject to laws like these and ultimately even less accountable to American consumers than the online marketplaces bills like this are obviously intending to target.

Meanwhile, even the part of the bill that forces platforms to display seller information creates a problem with compelled speech (Section (2)(b)(1)(A)(ii)). While commercial speech can sometimes be proscribed in certain ways without offending the First Amendment, a law drafted as broadly as this one is unlikely to be able to demonstrate the narrow tailoring required to surmount that constitutional hurdle. Especially when it acknowledges with its own exceptions how unnecessary some of its requirements are. Fortunately, it avoids an additional privacy problem by allowing vendors who only have a personal phone number or residential address to not have that information posted publicly (Section (2)(b)(2)(A)(i) and (iii)). Which is good, because if bills like these were to make it functionally impossible for entrepreneurial Americans to avail themselves of ecommerce, it wouldn’t be good for them, the economy, or consumers who would have liked to buy their products. But, then again, since, by its own terms, the bill acknowledges that there may be more pragmatic ways of addressing vendor accountability, its overly prescriptive approach, which still lumps far too many dissimilar vendors together with identical requirements, is unlikely to pass constitutional muster. And its practical effect will still amount to being a gratuitous burden on vendors and the online marketplaces they depend on to conduct their businesses, needlessly making it more difficult and expensive to do so.

Then, on top of these drafting infirmities, the House version of this bill would also give state attorney generals enforcement powers (Section (1)(d)), which is always a fraught exercise when it comes to Internet commerce, because it allows some states to exert an effective veto power over online platforms that other states might prefer to benefit from. But even the FTC enforcement power the bill proposes raises issues as well (Section (2)(c)(1)). It may be proper for the FTC to go after any vendor who dupes consumers into purchasing from them, including with the illusion of accountability. But as long as consumers are on notice that they may not be able to track down the vendor later, and not deceived into believing otherwise before making their purchase, then they are as empowered to make their purchasing decisions as the FTC has any business requiring. If consumers need more information before making their purchasing decisions, then that is a pressure they can put on the vendors or online marketplaces to deliver. We don’t need a law to force it, especially not one as blunt in its effects as this one.

In fact, everything about this bill is fatally blunt. Although it in theory only applies to “high volume” sellers, the definition of high volume can reach all sorts of casual sellers.

The term ?high-volume third party seller? means a participant on an online marketplace’s platform who is a third party seller and who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consumer products resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues. (Section (2)(e)(3)*

Also, even if some sort of law might be required to address the sales of dangerous or defective goods, there is nothing in this bill to restrict it to the sales of just these sorts of items. The requirements of the INFORM Act could just as easily reach vendors who sell books, CDs, or t-shirts, even if they only sell them periodically.

The term “consumer product” means any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes (including any such property intended to be attached to or installed in any real property without regard to whether it is so attached or installed). (Section (2)(e)(2) (citing 15 USC Section 2301(1)))

Given the expressive nature of these products, the mandatory identification requirements of a seller is something that directly offends the First Amendment’s right of anonymous speech. But even less dramatically, it’s still a bill that is utterly pointless, yet no less cumbersome, for vendors who sell all sorts of non-dangerous goods.

Or for any possible platform that might enable any sort of sales. While the drafters of this bill might have had certain online marketplaces and certain products in mind when they drafted it, neither its specific details, nor its general regulatory approach of burdening platforms with all responsibility for making sure bad things never happen through the Internet, are nearly so limited.

And that itself is a bad thing.

* The House version of the bill limits disclosure requirements to “any high-volume third party seller with an aggregate total of $20,000 or more in annual gross revenues on such online marketplace,” but since the statutory definition is still the lower amount, this alternate term ends up adding in more confusion, rather than relief.

Filed Under: inform act, information, marketplaces, privacy