Protocol | Policy

Online shopping scams are rampant. Are Washington’s fixes enough?

Congress is pressing forward on two bills that would require platforms to do more to crack down on shopping fraud. But would the solutions create more problems?

A christmas tree outside the U.S. Capitol building

The FTC has received over 50,000 fraud complaints related to online shopping since last January.

Photo: Tasos Katopodis/Getty Images

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The pandemic has been prime time for online scammers. Since January of last year, Americans have lost more than half a billion dollars to fraud, according to the FTC. But by far the most popular category of ripoff reported to the FTC lately has been related to online shopping, with more than 50,000 complaints rolling into the FTC during that period.

This uptick in e-commerce scams — particularly the rise of counterfeit medical and protective gear — has inspired lawmakers to introduce bills to mitigate fraud by requiring online marketplaces to collect and publish more information about their sellers and opening those platforms up to liability for failing to do so. The two bills — the SHOP Safe Act and the INFORM Consumers Act — are both bicameral and bipartisan, and they both target counterfeit and stolen goods. But they take markedly different approaches to solving the problem and are, not coincidentally, getting drastically different receptions from both the e-commerce industry and internet advocacy groups.

The SHOP Safe Act, which was first introduced in 2020 and reintroduced this year, is by far the more stringent and controversial of the two. It targets dangerous counterfeit goods by requiring a broad cross section of platforms to collect and display third party sellers' identities, locations and contact information and to adopt "best practices" for rooting out counterfeit products. Those best practices include, among other things, using automated tools to screen for counterfeit goods. Platforms that fail to adhere to these best practices would be subject to liability for trademark infringement when they're caught selling counterfeit goods that "implicate health and safety."

That bill, which was co-sponsored by House Judiciary Committee chair Jerrold Nadler, sailed through that committee in a 30-8 vote in September, and has received widespread support from major brands, brick and mortar chains and retailer associations. But it's been decidedly less popular among digital rights groups like the Electronic Frontier Foundation and e-commerce companies like eBay and Etsy.

Amazon has also been lobbying on the bill, but a spokesperson wouldn't say whether the company supports or opposes it. "We recognize the intent of this bill is to stop the sale of counterfeit goods, and we look forward to working with Congress to achieve that goal," the spokesperson said. (Disclosure: My husband works for Amazon).

For some critics of the bill, the concern is that it would entrench large players, including Amazon, who can more easily comply with the law while punishing smaller sellers and platforms.

The EFF in particular has expressed concern about the bill's broad definition of what constitutes a covered platform. In the most extreme interpretation, said Cara Gagliano, staff attorney for the EFF, a service like Gmail might be required to collect identification from users just in case they, say, arranged the sale of an old bike over email.

Then there's the fact that the bill only targets trademark violations, not the many other scams consumers fall prey to when they're shopping online. According to the FTC, one of the most common complaints from consumers regarding online shopping is that they've paid for an item that never actually arrived. That's particularly true with scams that start on social media. "[SHOP Safe] wouldn't impose any consequences on one of those fake sellers, unless what they were advertising was a counterfeit product," Gagliano said, noting that it also wouldn't create any consequences for the platforms that host those scammers.

But the primary concern among digital rights advocates is that SHOP Safe's automated screening requirements would filter out too much legal content. Trademarks, after all, can be as simple as a single word, which could lead to content moderation overreach, Gagliano said. "It's that policing requirement that really gives us pause," she said.

The INFORM Consumers Act, which was also first introduced in 2020, has managed to win over more tech companies and advocates than SHOP Safe. But it hasn't been without controversy either. The Senate version of the bill, introduced by Senators Dick Durbin and Bill Cassidy, would also require marketplaces to collect and publish identification and contact information, but only from "high-volume third-party sellers." That includes sellers that have made at least 200 sales over the course of 12 months, amounting to at least $5,000. Unlike SHOP Safe, enforcement of the INFORM Act would be left up to the FTC.

The bill's sponsors initially attempted to get it passed as part of the U.S. Innovation and Competition Act, which passed the Senate in June. But Amazon, eBay and others vehemently opposed the Senate version of the bill. Among other things, they argued that it was too onerous to require platforms to get sellers' driver's license information and that the bill would expose too much sensitive data about sellers.

Since then, however, those companies have come around on a new version of the bill introduced in the House, which they say resolves those concerns. "The revised INFORM Consumers Act no longer places onerous and burdensome requirements on individual and small business sellers," eBay wrote in an October press release. "These significant modifications will improve the consumer buying process while protecting millions of American individuals and small businesses selling online."

"Amazon and a number of small businesses that sell in our store have spent this past year talking to policymakers about the facts and what Congress can do to truly help protect customers, while not punishing the honest small businesses that sell online," Amazon's Vice President of Public Policy Brian Huseman wrote in an October blog post announcing Amazon's support for the House bill. In the post, Huseman accused "some big-box retailers like Walmart and Home Depot, and their respective lobbying groups," of pushing the original bill "to favor large brick-and-mortar retailers at the expense of small businesses that sell online."

The House bill, which passed the House Energy and Commerce Committee last week by a voice vote, also has support from consumer advocacy groups like Consumer Reports. "It's requiring a little more veracity, and it's doing so in a thoughtful way," said Laurel Lehman, a policy analyst at Consumer Reports.

Even the EFF has been more receptive to the INFORM Act. "We think the INFORM Consumers Act is a more sensible approach. It seems more tailored to what it's trying to do," Gagliano said.

But while the tech industry and consumer groups have praised the House version of the bill, these changes haven't sat well with its sponsors in the Senate. "I for one am not going to stand by and watch this watered down any further. We need to move on this," Sen. Durbin told the Washington Post, following Amazon's endorsement. The next day, Durbin and Cassidy introduced their version of the bill as an amendment to the National Defense Authorization Act, which must pass before the end of the year.

It's still unclear which one of these bills, if any, will win the day. What is clear is that momentum is actually building to fight counterfeit goods online, Lehman said. "I think we really saw the dramatic effects of when you have counterfeit [personal protective equipment] and vaccine cards and the obvious threat to public health and consumers that poses," she said. Of course, it doesn't hurt that powerful businesses with lots of lobbyists have a vested interest in stopping counterfeiters too.

But focusing on counterfeit products still leaves a lot on the table. The INFORM Act and the SHOP Safe Act are narrowly focused on ensuring the things people buy online aren't counterfeit or stolen. But they don't offer much help to consumers who thought they were buying products online from stores that just plain don't exist. For now, much of that work comes down to what platforms are doing themselves to automatically screen shops and respond to user reports.

Amazon's spokesperson said the company uses "hundreds of unique data points to verify information provided by those potential sellers," and that the company uses video chat to check that sellers match their government IDs. The company blocked 6 million sellers from signing up last year before they were able to list any items, and according to Amazon, less than .01% of products sold lead to counterfeit complaints. "If a product doesn't arrive or isn't as advertised, customers can contact our customer support team for a full refund of their order," the spokesperson said.

Facebook and Instagram, which are owned by Meta, screen shops through a combination of automation and human review, a spokesperson said. When the company does ban sellers, it cancels orders and emails users who have already paid for something through the store so they can fill out a purchase protection form. But all of that depends on Facebook or Instagram finding the fraudster first.

Lehman said she hopes that the transparency measures in both the INFORM Consumers Act and the SHOP Safe Act could deter fake sellers from setting up shop in the first place, but she acknowledges neither bill is a comprehensive solution to that problem.

"I think this is just the start of the conversation," Lehman said.

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