What Are the Key Legal and Regulatory Considerations for My ECommerce Business?
There are several legal requirements that eCommerce site owners must stay informed of if they want to comply with laws and regulations for e-Commerce businesses. For example, consumer protection laws, various legislation for consumer privacy and safety, and customs duties for international transactions.
It can be a headache navigating the many hurdles within the e-Commerce industry, but 2Visions is here to help make running DTC eCommerce online businesses fun and profitable.
Our experienced team will help guide brands through key legal and regulatory challenges for eCommerce enterprises so you can run your company without fearing expensive legal fees for failure to comply.
Consumer Protection Laws
One of the main expectations of brands is compliance with consumer protection laws. These laws protect customers from purchasing defective products, fraudulent business behavior, and products that could result in injury or damages.
Regardless of the types of products you sell and the e-Commerce transactions your company engages in, you should ensure you follow consumer protection laws. The Bureau of Consumer Protection outlines the details of maintaining consumer privacy, data from online transactions, and safety.
Learn more about some of the other legal and regulatory considerations for eCommerce businesses below.
In 2003, Congress enacted the CAN-SPAM Act with regulations for email marketing. Since email marketing is a prominent aspect of the eCommerce industry, it’s essential to know the facts. Some of the key things to know about the CAN-SPAM Act include the following:
- No false or deceptive header or email subject lines
- The email must be identified as an advertisement
- The email must include the company’s location information
- Unsubscription options must be available with fast opt-out request approval
According to the CAN-SPAM Act, even if you outsource your email marketing to another company, you’re still legally responsible for misconduct if your email marketing fails to meet any of the above criteria.
Consumer Review Fairness Act
The Consumer Review Fairness Act got implemented in 2016. This Act protects consumers from penalization for posting honest negative consumer reviews.
Reviews are an important way for consumers to learn more about the customer experience and entice traffic to view product images and browse your offered services. While a negative review can be frustrating, it is illegal to threaten or penalize a customer who has left negative reviews on Google Reviews, Yelp, TrustPilot, or other review sites.
Protecting consumers from penalization after honestly reviewing a company, service, or product is essential in ensuring consumers have a voice to express honest thoughts. Reviews are the lifeblood of eCommerce websites, so non-compliance with the Consumer Review Fairness Act could result in significant reputation damages and legal action.
Data Security Laws
Consumer Privacy Legislation seeks to protect personal data that consumers use to verify their identities online, like social security numbers, online transactions, medical information, student information, etc.
Every state has differing data security laws, but they all have some online privacy laws about consumer data privacy, website policies and security standards, customer data collection, credit card information storage, and more.
Data security laws are set in place to avoid the spread of personal information should security breaches occur for eCommerce site owners. Compliance with data security laws helps protect eCommerce companies from liability should someone file a suit against them for data breaches. Meanwhile, it protects customers from identity theft by setting strict online personal data protection standards.
Payment Card Industry
The Payment Card Industry (PCI) Security Standards Council sets standards for secure payments for online electronic commerce transactions. While the PCI has many standards set for optimal compliance with credit card data collection and storage, some of the most vital include the following:
- Build and maintain a secure network and system
- Encrypt the transmission of cardholder data
- Maintain protection against vulnerabilities
- Implement access control measures like ID authentication and restricted access points
- Regularly test security features on both mobile and web versions
- Have transparent privacy and security policies that customers can easily access
The eCommerce industry wouldn’t exist without secure credit card data collection. Instead, users must feel safe entrusting their personal data to your company, so your company needs to protect their essential information.
Children’s Online Privacy Protection Act (COPPA)
Anyone can hop online on their computer or mobile device, so the Children’s Online Privacy Protection Act (COPPA) was set in motion in 1998. COPPA protects children under the age of 13 from getting their data collected without their parent’s consent.
A COPPA violation is when an eCommerce company allows third-party websites to track the browsing history or collect data from visitors to their site. For example, suppose someone under the age of 13 accesses a site and gets data collected or used by third-party trackers. In that case, the eCommerce website can be held liable for non-compliance.
Failure to comply with COPPA standards for childhood online security can result in expensive fines. The maximum penalty is $42,500 per violation. According to the FTC, Google and Youtube were fined 170 million dollars for alleged COPPA violations in 2019, one of the most considerable fines for COPPA non-compliance.
Bureau of Industry and Security
The Bureau of Industry and Security (BIS) manages all importation and exportations. If you run an eCommerce business that ships and receives physical products, then it’s important to stay in compliance with the BIS standards.
The BIS has various regulatory challenges because product types each have a different shipping form. Depending on which types of products you ship, different laws may apply. The BIS may have regulations for the location you intend to ship to. Remember, some countries are sanctioned by the BIS and need special permits for international shipping.
Consult with an expert in DTC eCommerce at 2Visions if you’re shipping or receiving international products. Our dedicated team can help you navigate complicated paperwork from the BIS and other ways to navigate legal and regulatory challenges in the eCommerce world.
Intellectual Property Rights
E-commerce site owners must know about intellectual property laws. For example, suppose you’re starting an Etsy shop with digital documents you didn’t create or are using product images you didn’t photograph yourself. In that case, you could face expensive legal fines for using someone else’s creative works.
E-Commerce businesses have to be careful not to steal from creators. Luckily, the internet has many free resources for eCommerce businesses, like Shutterstock, for copyright-free photos.
Compliance With ECommerce Laws
Above, we listed some of the many eCommerce laws to keep in mind. You must follow the applicable internet laws, regional agreements, and consumer data privacy laws. Failure to comply with eCommerce laws can result in hefty fines and penalties for your company, and the proper authorities could even revoke your business license.
Following through on a contract of sale, meeting market requirements, and meeting consumer expectations of a brand’s quality are crucial to staying in compliance with eCommerce laws.
Whether your eCommerce business has a Joint Venture Agreement, uses assistive technology, or outsources tasks to B2B eCommerce companies, it’s the owner’s job to ensure all parties are complying with eCommerce laws at every stage of business.
Get Business Permits
One of the most extensive legal and regulatory considerations for eCommerce businesses is the permits required to operate an online store legally. Some of the business permits you’ll need to stay in the e-Commerce industry include the following:
- Business Operation License
- Employer Identification Number (EIN)
- Doing Business As (DBA) License
- Seller’s Permit
- Sales Tax License
- Occupational License
- Home Occupation Permit
E-Commerce businesses require several different permits and licenses to offer a smooth customer experience for all buyers and meet product content expectations. If you’re unsure which licenses you should apply for to run your eCommerce business, schedule a free consultation with a DTC Ecommerce professional to discuss which business permits are essential for your eCommerce enterprise.
Insurance coverage is vital to having a successful eCommerce company. During insurance audits, you’ll find exposures in your coverage so you can obtain the right insurance for your business needs. Some of the things business insurance can help with for an eCommerce company include the following:
- Copyright laws
- Copyright protection
- General liability insurance
- Employee insurance
- Vehicle coverage
Depending on the types of products you sell, you may also require additional protections like professional liability insurance. This type of insurance coverage is best for companies that offer advice or services that cost consumers financial or health losses.
For example, a company selling nutritional supplements might consider professional liability insurance in case someone files a lawsuit because they took more than the recommended daily dose of vitamins on the advice of an employee.
Pay Necessary Taxes
ECommerce businesses ship locally and internationally, with each purchase eligible for sales taxes according to where the product gets shipped. Import duties are another legal and regulatory challenge in the world of DTC eCommerce. If you ship products internationally, you must pay the necessary import duties to stay in compliance with the law.
Alongside paying import duties, business, and sales taxes, there are also employee taxes required for Medicare and Social Security taxes. Employees are responsible for part of this tax, while employers are responsible for the other half.
Hire an expert accountant or use resources like TaxJar to help keep track of your orders and their associated taxes so that, come tax season, you’re ready with information in hand. Failure to pay the proper taxes for an eCommerce business can result in fines and audits from the IRS.
How Do I Ensure That My ECommerce Business Is Compliant with Relevant Laws and Regulations?
Staying informed about legal and regulatory considerations for eCommerce businesses is the best way to ensure you stay compliant with relevant laws and regulations. Some of the best ways to stay informed are to read industry resources, consult with legal advisors, and implement company policies that safeguard you and your employee from non-compliance.
The FTC has various free resources with advice and guidance for staying compliant with regulations for every industry. In addition, you can ensure that your eCommerce business remains compliant with relevant laws and regulations by keeping up to date with news and sharing resources from government websites with all employees and outsourcing companies.
Industry resources are there for employers, employees, and customers to use to ensure a smooth customer transaction and guaranteed satisfaction.
Set up a Google Search Alert with keywords relating to your eCommerce field and laws, updates, or amendments. Your Google Alert will send you a notification anytime a news story gets posted that’s related to your search alert, so you stay compliant, even if the laws have changed since you first got into the business.
You could spend days navigating legal and regulatory challenges in the world of DTC eCommerce, or you could consult with a legal expert.
Legal advice saves valuable time you could invest in your eCommerce business. For example, a professional lawyer with experience in eCommerce business law can help you file for the necessary permits and licenses and refer you to insurance experts for the required coverage in case you fail to meet compliance regulations.
By utilizing the advice of an expert legal professional, you can help ensure your business stays compliant with relevant laws and regulations for your eCommerce enterprise.
Implementing Policies and Procedures
The laws and regulations act as a guide for brands to follow to ensure customers get what they expect, taxes get paid to the appropriate states or governments, and business gets conducted with customer safety in mind.
By implementing policies and procedures in your company, you can safeguard yourself from expensive legal fees for failure to comply with eCommerce business laws. For example, your email marketing team should have guidelines or an approval team monitoring subject lines and commercial emails to ensure you comply with the CAN-SPAM Act.
Another beneficial policy is regularly removing data from servers, using assistive technology to track sales taxes, and conducting regular product quality tests to ensure it meets consumer expectations.
What Are the Potential Consequences of Non-compliance for My ECommerce Business?
Some of the most significant expectations of brands are to deliver on their promises and provide a safe product that hasn’t been stolen from another creator. Unfortunately, there are many ways an eCommerce business can deceive consumers, so these laws are in place to protect consumers, regardless of the types of products they buy online.
E-commerce site owners are responsible for being aware of and upholding the legal and regulatory considerations of eCommerce industry experts. Failure to do so can result in consequences that can collapse the business by destroying its financial backing, ruining its reputation, and losing its CEO to jail time.
While financial losses are tangible hits companies take when they fail to comply with the law, reputation damage is one of the fastest ways to bankrupt a company by losing the trust of your customer base, stockholders, and investors.
There can be serious legal consequences, depending on which legal and regulatory considerations for eCommerce businesses someone fails to comply with. On top of fines and legal fees, a judge may rule that failure to comply with the law was criminally negligent, resulting in jail time.
Another legal consequence of non-compliance with internet laws is a business license revocation. If you’ve ignored the laws while operating a business, it’s possible that you could be stopped from conducting business entirely.
All legal consequences will be determined by your legal advisors and a judge on a case-by-case basis.
There are large financial consequences for failing to comply with eCommerce laws and regulations. Firstly, legal fees to defend against claims are costly. Secondly, if you lose your case, the fines are hefty. For example, In January 2023, the FTC fined a company $1.7 million for lack of compliance.
Remember, the FTC adjusts fines to fit inflation and has raised the maximum civil penalty for over 15 FTC provisions. If your email marketing fails to comply with the CAN-SPAM Act, your eCommerce business may get fined up to $46,500.
Depending on which laws you break and how you fail to comply, you can face serious financial consequences that could bankrupt your eCommerce business if you don’t have the proper insurance coverage and legal protection.
One of the worst harms failure to comply with eCommerce laws and regulations does to a business is ruining its reputation. Alongside steep financial losses from legal and settlement fees, stock prices can plummet after investors get wind of the news.
It can be detrimental to customer loyalty when they hear of companies that fail to comply with laws. Losing your good standing with customers is a surefire way for your eCommerce business to fail in the short and long term. Once the reputation of a company is damaged, it is nearly impossible for them to recover the status they previously held.
Whether it’s negative reviews or a class action lawsuit, the reputational damages of failing to comply with the law can damage an eCommerce company’s reputation beyond repair.
Implementing Measures to Mitigate the Risks of Non-compliance
Luckily, you can save yourself from costly legal fees, a tarnished reputation, and prison time by implementing measures to mitigate the risks of non-compliance.
Seek places within your eCommerce business where an opportunity for non-compliance could occur and adjust practices and training to ensure all employees understand the laws and regulations.
When outsourcing eCommerce tasks to a B2B service provider, give them strict guidelines in accordance with business laws to ensure everyone on the team is on the same page. If the outsourcing company doesn’t accept your terms, you’ll be better off seeking out another company that will comply with all aspects of the law.
How Can I Stay Up to Date with Changes in the Legal and Regulatory Landscape for ECommerce?
In the ever-changing eCommerce industry, it can seem overwhelming to stay up to date with changes in the legal and regulatory landscape. However, the best way to stay in compliance with the law and offer a smooth customer experience is to meet the expectations of the user and the law.
Filing taxes is a necessary but time-consuming task for many eCommerce site owners who ship products internationally. Luckily, tax season is a regular occurrence that your company accountant should be on top of year-round. With a trustworthy and educated accountant, failure to comply with tax laws shouldn’t be on your list of concerns.
Utilize high-end tools and services to help organize the legal aspects of your eCommerce enterprise, like sales tax trackers, lawyers, and industry resources. Below, we’ll discuss more ways to stay up to date with changes in the legal and regulatory landscape for eCommerce businesses.
The FTC regularly posts news and press releases about new regulations, amendments, and updates to consumer laws. This free resource is an ideal way to know about any eCommerce industry changes that may affect your business operations.
Another free industry resource with regular posts about industry happenings is the Shopify blog. You can find courses, online guides, and eCommerce SEO tips here. Shopify posts routinely, so should any industry updates occur, this blog is a good source for trustworthy and clearly articulated information.
Other great industry resources are government websites, primarily if you ship products internationally or out of state. Depending on the shipping location, government websites will have news and press releases, links to official documents, and more to help you find the regulations and laws worth considering while conducting business out of state or abroad.
A lawyer has spent years of their life studying the fine print of the law. Utilize their expertise by hiring a lawyer before legal issues arise to mitigate the chances of something happening. Lawyers will diligently scour through your legal documents to ensure all permits are up to date and everything is in accordance with eCommerce laws and regulations.
Keeping a company lawyer will also help you stay in the know about updates or amendments to policies relevant to your business. It’s their job to stay educated about the law, so should any changes occur that could affect your business, they’ll keep you posted about the next steps.
Should anything happen, having a professional and competent lawyer who already knows your business will help you during legal cases. From negotiating the best settlements to finding loopholes that get a case dismissed, a business lawyer is a valuable asset for any eCommerce company.
Get Everyone Involved
Implement policies and procedures throughout your eCommerce company to make it easier for employees to stay in compliance with the law while they perform their work functions. Since everyone is involved in staying compliant, assign staff members to routinely stay updated on proper industry procedures.
By having everyone involved in understanding compliance laws and staying in the know about updates and amendments, your eCommerce team can stay connected and compliant without hesitation.
If you have a larger team, assign a member in HR to regularly report on compliance and investigate internal practices to find risk exposures and nip them in the bud before they become expensive legal settlements or reputation-damaging lawsuits.