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Return Policies and Refunds

Nearly every consumer has returned a purchased item for a refund, exchange, or store credit at least once. The experience usually is quite uneventful, although sometimes returns don't go the way we would like them to. But while merchants are not required to accept returns (unless there is a defect, in which case it may be covered by an implied warranty), certain laws govern the disclosure of refund and return policies.

The following information covers the basics of refunds and return policies in general. See "Product Warranties and Returns" for related articles.

Returns and Refunds: Federal Law

Most retailers allow customers to return goods if they change their minds or receive an unwanted item as a gift simply because it makes good business sense. But they are not required to do unless there is an obvious defect with the product. Merchants also may require a receipt in order to accept returns, which helps prevent return fraud (see discussion of this below).

Legally, it is a matter of contract law: If the merchant's policy (or sales contract) clearly states "all sales final" in a way that is not confusing to customers, then it is not required to accept returns on otherwise salable goods.

Federal law governing refunds is fairly simple and straigtforward, applying to online as well as in-store sales. Merchants do not have to provide a full refund on returned goods unless one of the following conditions is true:

  • The goods were defective (or, more generally, the merchant broke its sales contract)
  • Refunds are part of the merchant's stated return policy

Returns and Refunds: State Law

Some states have laws addressing consumer refunds, although not all of them offer guidance on how the laws apply to their residents who purchase goods from out-of-state merchants over the Internet. Below are some examples of state laws governing refunds:

  • California: Merchants are required to clearly post their refund policy unless they offer full cash refund, exchange, or store credit within seven days of the purchase date. Failing this requirement, customers may return goods for a full refund within 30 days of the purchase.
  • Florida: Merchants that do not offer refunds must post this fact where customers can see. Failing this requirement, customers may return goods for a full refund within 20 days of the purchase.
  • Illinois: Illinois citizens may cancel consumer transactions (and get a full refund) within three business days for door-to-door sales, campground memberships, and gym memberships.

In most cases, regardless of how a merchant drafts its return policy, the conditions of such a policy must be prominently displayed at the place of purchase (including Web sites) for it to be considered valid. Merchants may charge a restocking fee for returned merchandise but, as with any contractual obligation, must make this clear in their policies.

Return Fraud

There are numerous ways customers can defraud a merchant through the return process, but not all return fraud is distinguishable from legitimate returns. For example, someone who has a hard time deciding on what clothes to buy and makes frequent returns is not trying to game the system. But someone who buys a formal dress, wears it once, and then returns it the next day is in fact defrauding the merchant.

U.S. retailers lose between $9.6 billion and $14.8 billion annually from return fraud, according to research by the National Retail Federation (NRF) and the Loss Prevention Research Council. Returned merchandise is either marked down or thrown away, and often incurs hidden costs associated with being restocked.

Below are some common types of return fraud:

  • Wardrobing (or "renting"): Buying clothes or other items for one-time use and then returning them
  • Stolen Goods: Returning goods shoplifted at the same store or stolen elsewhere
  • Fraudulent Receipts: Using a reused, found, stolen, or altered receipt to return goods; or returning goods to a store with a higher price in order to make a profit
  • Employee Fraud: Manipulation or assistance from within the company
  • Price Switching: Affixing a higher-priced tag on an item in hopes of returning it for the higher refund

Consumers who are caught engaging in return fraud may face shoplifting or theft charges, as long as evidence exists that an actual crime took place. For example, wardrobing may be next to impossible to prove, but surveillance video of someone removing price tags could be the smoking gun in such a case.

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