As Covid-19 precipitated an e-commerce boom, the largely hidden truth of ‘returnless refunds’ is gradually emerging from obscurity. Employed by an increasing number of online retailers, returnless refunds allow buyers to keep unwanted goods while still being refunded.  Why the current trend? With returns costing around 66% of the product’s original price, e-retailers are trying to stem costs leakage from handling returns of lower-priced goods. 

At first glance, returnless refunds may seem to bestow on consumers double what they had paid for – and for ‘free’. However, managing the returns process may also create hassle and impose unanticipated costs. This article aims to examine the concept of returnless refunds through the lens of consumer protection legislation.  Whilst this might be construed as a pure 'win win' for consumers, there may be an economic underlying logic to this trend.

Consumer Rights Act (CRA) 2015

Whilst the CRA 2015 does not explicitly address ‘returnless refunds’, certain aspects of returnless refunds may contravene it.

Limiting the scope of statutory remedies?

Under the CRA 2015, a consumer has the right to reject faulty goods and seek remedies, such as a refund. Whilst traders cannot contract out of, or restrict liability arising from, the CRA 2015, returnless refunds may, to a certain extent, appear to deprive consumers of their statutory protections. For instance, under sections 20(8) and 2(8) CRA 2015, regardless of whether the consumer has a duty to return the rejected goods, the trader must bear any reasonable costs of returning the rejected goods (including postal costs (CRA 2015, Explanatory Notes)). Accordingly, returnless refunds may be passing the cost of disposing of goods to consumers – the costs of which the CRA 2015, when goods are rejected and returned, intend traders to pay. Taking this a step further, can such costs be potentially interpreted as a fee imposed on consumers by traders, contrary to the statutory prohibition of such fees (section 20(17) CRA 2015)? 

If a consumer does not wish to reject the product and rather have it repaired or replaced, does a returnless refund ‘deprive’ consumers of their right to repair and replacement – a ‘first-tier remedy’? In general, subject to exceptions, consumers can choose to repair or replace a faulty good (section 23(3)(a) CRA 2015) and the trader must perform as chosen without significant inconvenience to the consumer (section 23(3)(a) CRA 2015). Whilst it is uncommon for consumers to seek repairs of low-priced products, by sidestepping the option of repair (which requires taking the product back), retailers may be contravening the CRA 2015. In particular, the ECJ has resisted suggestions that repair or replacement could be deemed impossible on the grounds of costs to the trader of those options (Gebr Weber GmbH v Wittmer (C-65/09) [2011] 3 C.M.L.R. 27).

Transparency and unfairness

Part 2 of the CRA 2015 requires all terms and consumer notices in consumer contracts to be transparent, and renders unfair terms and/or notices unenforceable. ‘Transparent’ means expressed in plain and intelligible language (section 68 CRA 2015) – consumers should be able to see how their rights and obligations relate to each other, so that they can foresee and evaluate, at the time of conclusion of the contract, the consequences their rights and obligations may have (CMA Unfair Terms Guidance). With many e-retailers, not disclosing their returnless refunds policy in their official returns policy, traders risk being insufficiently transparent. 

A term is unfair if it is contrary to the requirement of good faith (which involves “fair and open dealing” (Director of General of Fair Trading v First National Bank plc [2001] UKHL 52)), and if it causes a significant imbalance in the parties’ rights and obligations that is detrimental to the consumer (section 62(4) CRA 2015). Whilst it may be difficult to see how returnless refunds may materially harm consumers (especially if lower-priced products are only involved), doubts remain vis-à-vis good faith. The use of AI to set returnless refund rules (e.g., leveraging AI to analyse the consumer’s purchasing history to identify return fraudsters or repeaters before deciding whether to process the returnless refund) and the secrecy behind such algorithms may trigger a review of the fairness of returnless refunds. 

Consumer Protection (Distance Selling) Regulations 2000 (SI 2000/2334)

Drawing parallels with the CRA 2015, the Distance Selling Regulations outline information which must be provided to consumers pre-signing, such as, all information in relation to the main characteristics of the goods or services. In a survey, 92% of customers said they will buy again if the return process were easy (invesp, 2024), suggesting that return processes (and thus, returnless refund policies) form part of the product’s main features.  

Conclusion

The relationship between consumer protection regulations and returnless refunds presents an interesting landscape that requires careful consideration from e-retailers. Whilst returnless refunds offer a promising solution to streamline return processes, reduce costs and enhance customer satisfaction, they also raise important questions regarding consumer rights and protections. Clear guidelines and transparency are essential to ensure consumers are adequately informed in the event of product dissatisfaction.