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: State Law
Many 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, which covers the cost of replacing the packaging in order to sell it as new. However, state laws dictate whether or not customers must be notified about these fees prior to purchase. In New York, for example, retailers are required to prominently display their restocking fee policies prior to the point of purchase. New Hampshire, on the other hand, does not require such a notification.
Returns and Refunds: Federal Law
While state laws primarily govern the issue of returned merchandise, there's no federal law that requires a merchant to refund money. Per most state laws, refunds are subject to the established store refund policy at the time of purchase, unless the product purchased is found to be unfit for the purpose of which it was intended. A customer changing his or her mind after making a purchase, such as deciding they want a bigger television screen, is not the fault of the merchant and the merchant cannot be held responsible.
Generally speaking, most stores do offer refunds. It is usually pursuant to a store policy which explicitly that returns are extended, in order to create and keep good will in the community; but again, this is a store policy and not a federal law.
Federal Trade Commission (FTC) and Deceptive Claims
Federal law does provide some, limited protections to consumers through the Federal Trade Commission (FTC). The FTC enforces federal consumer protection laws meant to prevent fraudulent, deceptive, or unfair business practices such as false advertising.
The agency will sue companies that make deceptive claims about their products or services. When the FTC settles a case it tries to obtain refunds for consumers who lost money, if that's possible, but these refunds are based on deceptive or unfair business practice regulations, not state-refunds laws. Simply put, refunds tend to be a state law contract issue.
FTC and the Cooling-Off Period Rule
The FTC also enforces a "Cooling-Off Rule," that pertains strictly to door-to-door sales. It gives a consumer three (3) days to cancel purchases of $25 or more made at a person's home, workplace or dormitory, or at facilities rented by the seller on a temporary short-term basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants. Many exceptions exist, however; it does not cover purchases made entirely by phone, mail, or online.
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.
If you have further questions about refund laws or believe you have a legal claim involving a purchase you've made, it may be in your best interests to consult with a qualified consumer protection attorney.