Opinion: The hidden dangers of monitoring returns

For years, many retailers have at least informally been on the lookout for customers who abuse the return transaction process, and in some cases, declined to engage in further business with customers perceived to be engaging in abusive or even fraudulent return transactions. With the recession, and advanced technology, many retailers are either tightening their return transaction policies and/or their processes for identifying abusive return transaction patterns.  However, this tightening is not without regulatory or litigation risk and it is wise to involve legal counsel before doing so, especially in the following four areas:

First, for each state in which the retailer operates, the laws and regulations governing return transactions should be reviewed.  Several states require the posting of return policies, and express disclosure of deviations from statutorily-established return policy terms.  In addition, certain states require that notice of the return policy be provided to a customer before the transaction -- thus the disclosure of the terms of the return policy on a receipt arguably may not be enough to comply.

Second, states are increasingly focusing on the practice of monitoring customer’s return transaction history, particularly when it involves automated monitoring or monitoring by a third party.  Thus, for example, Connecticut requires that any business “that utilizes an electronic system to record, monitor, and limit the number or total dollar value of returns made by a consumer shall clearly indicate the use of such system within such person’s conspicuously posted refund or exchange policy.”  More broadly, the Office of the California Attorney General has instructed retailers “who keep records of consumers who frequently return merchandise and sometimes report that to a central reporting company and may not offer returns or refunds to such customers” that the “return policy notice must refer to such practice.”

Third, retailers should exercise care when identifying customers who are engaging in abusive return transaction practices.  In Connecticut, for example, retailers are required to follow specific procedures when “terminating the right of any consumer to return goods.”  In other states, the retailer’s failure to disclosure the possibility that the right to return may be terminated arguably may fall within the scope of those states’ consumer protection, unfair trade practices, and return policy statutes and regulations, even if not expressly addressed.

Fourth, to the extent that the monitoring of return transactions involves the use of consumers’ drivers licenses, various laws and regulations may come into play.  Certain statutes and regulations may limit how and when such information may be collected and used.

There is no question that a well-considered return policy -- including a monitoring component -- benefits both businesses and consumers.  There also is no question, however, that there are many risks in addition to those outlined here, such as privacy and data security risks, which should be considered when modifying the terms and practices of a return policy.

Donna Wilson leads the West Coast litigation practice of BuckleySandler LLP, where she focuses on class action defense and complex litigation in a variety of areas impacting the retail industry, including privacy and consumer financial services.