Between privacy regulations to tax compliance, a broad collection of rules and regulations protects consumers and provides for fair and legal eCommerce operations.
With eCommerce sales skyrocketing to $5.2 trillion worldwide in 2021 alone, online retailers may be facing increased pressures to comply with eCommerce business regulations.
In this post, learn more about the top ecommerce regulatory compliance rules and what can happen if you violate any of them.
What is eCommerce regulatory compliance?
Ecommerce regulatory compliance refers to a set of legal requirements that eCommerce businesses must follow. As with any sort of business, eCommerce companies must adhere to various compliance guidelines and specifications to ensure fair and honest business practices across the industry, as well as shield consumers from potential wrongdoing.
Why is compliance important for eCommerce businesses?
Ecommerce regulatory compliance is meant to not only protect your company brand and assets from penalties and fines but also to preserve strong, ongoing customer relationships through honest and ethical business practices.
For example, tax laws such as sales tax requirements will necessitate proper annual filings to preserve company assets and avoid fines. There are also eCommerce shipping and customs regulations in place that must be followed to avoid penalties, especially in cases of cross-border shipments.
On behalf of your customers, eCommerce regulatory compliance requirements protect shoppers from concerns like false advertising practices and unlawful data collection while using online marketplaces and retail platforms. Such requirements include eCommerce privacy regulations that work to keep customer data secure and prevent the risk of identity theft and fraud.
What can happen if you aren’t compliant
In the event that an online business fails to comply with the various eCommerce industry laws and regulations, it is possible to incur consequences including but not limited to:
- Class action lawsuits involving consumer privacy violations.
- Internal Revenue Service (IRS) tax audits, fines, and investigations.
- Government intervention from varying agencies, including the U.S. Customs, the Federal Trade Commission (FTC), and the U.S. Department of Commerce.
- Risk of criminal charges and arrest in the event of extreme compliance failure.
8 regulations all eCommerce businesses should know
Here are the regulations that all eCommerce entrepreneurs should know and follow if they want to avoid big fines and potentially jail time.
1. PCI Compliance
With the majority of online payments made via credit or bank card, Payment Card Industry (PCI) Data Security Standard compliance is required by eCommerce operators when collecting consumer payments. This set of unified standards outlines how to securely process card transactions online and will require eCommerce stores and point of sale (POS) system users to provide a secure and encrypted checkout method as well as properly manage and store this purchase data.
In cases where an eCommerce operator fails to comply with the PCI standard and it results in consumer data security issues, the retailer can face monetary fines ranging from $10 to $10,000 a month, digital forensic audits, payment brand restrictions, and the risk of class action lawsuits.
For example, retail giant Target was ordered to pay an $18.5 million settlement in 2013 after a data breach resulted in more than 41 million customer payment card accounts being compromised.
The European Union (EU) enacted the General Data Protection Regulation (GDPR) in 2018 to better protect the processing and management of private consumer data in companies operating across the EU as well as outside entities that conduct business inside the EU. These strict regulations require eCommerce store owners to legally gather and manage data under specific conditions, particularly with the use of permission requests and the adoption of robust data security measures.
For any eCommerce shop operating in the EU or using EU citizen customer data, failure to properly comply with GDPR requirements could result in steep fines of up to €20 million or 4% of global revenue, as well as legal repercussions brought on by customers who are affected. In July 2021, eCommerce giant Amazon was issued the largest fine ever of €746 million ($887 million) after a GDPR investigation found it used its advertising targeting system without proper consent.
In 1998, the Children’s Online Privacy Protection Act (COPPA) was passed to implement new restrictions regarding the collection and use of personal data from children under the age of 13. For websites and eCommerce platforms that collect consumer data and may be frequented by children under 13, COPPA defines what must be included in the company’s privacy policies, what can and cannot be marketed to children, and when parental consent will be required.
eCommerce operations that violate various COPPA regulations can face penalties of up to $46,517 per affected child. In certain cases, COPPA violations can arise from advertising and marketing efforts placed on websites used by children. In 2021, advertising platform OpenX Technologies, Inc. was ordered to pay $2 million after the FTC discovered it collected location data from children under 13 without consent through an OpenX ad exchange used on child-directed applications.
4. Sales tax
Across the U.S., sales tax requirements will vary from state to state. This all starts by determining where your business has sales tax nexus and then registering, filing, and appropriate tax in these states.
Failure to properly calculate and collect your specific sales tax amount upon each sale can not only negatively impact your overall eCommerce profits, but also place your business at risk of an IRS tax audit and penalties come tax season.
Because sales tax calculations can get complicated fast, we recommend using a third-party app, like Avalara, in order to automate sales tax calculations and effectively record this data for tax purposes.
5. Federal Trade Commission (FTC) compliance
As an eCommerce business owner, if you use affiliate marketers or social media influencers to drive brand awareness and boost sales, it’s critical to first be aware of the compliance regulations set forth by the Federal Trade Commission (FTC).
According to the FTC, social media influencers are required to disclose to viewers when they have any sort of financial relationship with an eCommerce brand, especially when publishing sponsored content.
Disclosing to consumers that an affiliate marketer is being paid by your brand helps maintain transparency and honesty across your eCommerce marketing efforts. Failure to comply with this FTC affiliate marketing requirement constitutes a deceptive trade practice under the FTC Act and can result in both the eCommerce company and the affiliate facing substantial fines.
6. Shipping and customs regulations
With many online stores operating across state and international lines, eCommerce stores must understand what they can and cannot ship through the various available shipping providers.
According to the U.S. Postal Service, online stores cannot ship items including but not limited to aerosols, alcoholic beverages, and hemp products both domestically and internationally.
The FTC also has its own Mail Order Rule that requires eCommerce operators to follow fair shipping practices, including meeting any advertised shipping promises (e.g. 2-Day Shipping or Fast Shipping) and providing consumers a refund in the event of unexpected shipping delays.
In 2020, online fashion retailer Fashion Nova had to pay $9.3 million to settle an FTC shipping violation after they failed to notify customers of delayed shipments nor provide the ability to cancel their orders.
7. Trademarks & copyrights
Under U.S. law, properly filed trademarks and copyrights, such as product designs, music, and literature, can only be used by intellectual property owners themselves or by those who have appropriate consent.
As an eCommerce store owner and operator, if you use intellectual property within your products that you don’t have legal consent to use or is not owned by you, you are at risk of a costly copyright infringement lawsuit.
In 2022, eCommerce platform giant Shopify had to pay out a confidential amount to multiple major education publications, including McGraw Hill and Pearson Education, after Shopify failed to take down eCommerce sites selling pirated digital versions of their materials.
The Americans with Disabilities Act (ADA) is a federal law that requires all businesses to make their websites accessible to people with disabilities.
There are a few key things that businesses need to consider when it comes to ADA compliance:
- Web content: Websites should be designed in a way that is easy for people with disabilities to use. This includes using clear and easy-to-read text, providing alt text for images, and using headings and lists to organize content.
- Navigation: Websites should be easy to navigate, with clear links and buttons that are easy to click on.
- Forms: Forms should be easy to fill out and submit, with clear labels and instructions.
- Multimedia: Websites should provide captions and transcripts for videos and other multimedia content.
In sum, these are the biggest regulations that all eCommerce businesses should know about and abide by. However, in our experience, the one that trips up business owners the most is sales tax requirements.