Legal Matters: Beneath Those Refund and Return Policies
Catalogs and Web sites provide customers with more than just product displays, merchandise descriptions and purchase information. They generally include a number of legal disclosures as well. Frequently overlooked, however, is an explanation of the retailer’s refund and return policy. Such a disclosure should be included, both as a matter of legal compliance and industry best practice.
State Disclosure Laws
Approximately one-third of states have enacted legislation related to retail sales return policies. A few states have disclosure laws specifically targeted toward certain types of direct marketers.
• In California, a vendor conducting business through the Internet or other electronic means must disclose its return and refund policy before accepting any payment from a California customer.
• In Wisconsin, “mail solicitations” generally require a seller to disclose in writing its policies “related to refunds, cancellations, exchanges or repurchases” prior to taking a customer’s credit card number or accepting payment. Significantly, however, the term “mail solicitation” is defined to exclude a catalog or an Internet homepage.
Many states have disclosure laws that apply to all retailers. Massachusetts requires return or refund policies be “clearly and conspicuously disclose[d]” prior to a sales transaction, for example. This law applies equally to shops on Beacon Hill and catalogs mailed to Boston customers.
Most state laws regarding refund/return policies, however, were drafted at a time when retail sales were assumed to occur over the counter in a conventional store. These laws typically grant retailers considerable discretion in determining their product return policies, requiring only that once the policy is established, it be clearly disclosed to consumers, usually through some form of point-of-sale posting.
For catalogers and electronic merchants who don’t maintain sales premises, but transact business remotely, the question becomes: Is there still a need to disclose return policies in order to comply with state laws, which, by their literal terms, require posting at retail establishments?
I highly recommend compliance here, and it’s probably legally required as well. Remote sellers might argue that laws mandating disclosure of return and refund policies “on the premises” or requiring that a “sign” be “posted” in a retail establishment have no applicability to the Internet or to mailed promotional materials. But direct marketers are at considerable risk of a liberal interpretation of these consumer protection laws. The penalties for noncompliance can be substantial.
Catalogs and Internet sites are, in fact, the functional equivalent of retail stores, and most state attorney generals will take the position that a written disclosure is required to satisfy the “posting” or “signage” obligations of their states’ laws.
Some states employ a default period, which requires that a seller’s refund policy must be conspicuously posted unless the retailer has a policy of offering cash refunds for returns made within a statutorily established minimum period of time.
Some examples, New York and Virginia: 20 days. Rhode Island: 10 days. Florida and California: seven days. Hawaii: 60 days.
The absence of a published return policy exposes a retailer to potential charges that customers were intentionally misled regarding their rights as consumers. Full disclosure is a useful defense against claims of unfair and deceptive trade practices.
Moreover, disclosure of its refund/return policy permits a retailer to craft a shorter return period than would result from an applicable state statute setting a “default” refund period. Given these factors, publication of product return policies is a sound and sensible business practice, as well as a prudent course of legal conduct.
Telemarketing Sales Rule
Although disclosure of return policies is primarily an issue of state regulation, the Telemarketing Sales Rule (implementing the federal Telemarketing and Consumer Fraud and Abuse Prevention Act) applies to businesses that use either inbound or outbound interstate telephone calls to sell goods or services. The Rule states disclosure is required if a seller
… has a policy of not making refunds, cancellations, exchanges, or repurchases … ; or, if the seller or telemarketer makes a representation about a refund, cancellation, exchange, or repurchase policy, a statement of all material terms and conditions of such policy.
The Telemarketing Sales Rule provides, however, that telephone calls placed by customers in response to direct mail solicitations are exempt from the Rule’s requirements if, among other things, the offerer’s refund policy is clearly disclosed for customers in the initial solicitation.
The Direct Marketing Association’s Guidelines for Ethical Business Practice suggest the terms and conditions of any refund policy “should be clearly and conspicuously disclosed in the initial offer.” What’s more, the FTC recommends that consumers determine a retailer’s refund and return policies prior to ordering by phone or mail.
In addition to avoiding fines, penalties and potential class action lawsuits, clear disclosure of return policies prevents customer confusion and minimizes complaints after the completion of a sale. Disclosure can be crucial to maintaining customer goodwill and avoiding adverse interactions that could escalate into lawsuits or complaints to government agencies.
George S. Isaacson is a senior partner with Brann & Isaacson. He represents multichannel merchants on tax matters and is tax counsel to the Direct Marketing Association. You can reach him at firstname.lastname@example.org.