What Is Return Fraud?

Return fraud is a deceptive act aimed at exploiting a store’s return policy for financial gain, free merchandise, or to harm the business [1.]. While return policies are meant to assist genuine customers, some individuals manipulate these policies to their advantage.

“Return fraud, or return abuse, is a type of friendly fraud where the fraudster buys a product with the intention of returning it after use, such as in wardrobing. While it affects both online and brick-and-mortar stores, online retailers are more often targeted. If items are bought with stolen credit cards, it shifts from friendly fraud to genuine payment fraud.”

Differences Between Return Fraud and Refund Fraud

Return fraud and refund fraud are related but distinct types of fraud that exploit store policies in different ways.

The key difference lies in the method: return fraud involves the physical return of merchandise, while refund fraud manipulates the refund process without necessarily returning any products. Understanding these differences is crucial for retailers looking to safeguard against both forms of fraud.

Examples of Return Fraud

Return fraud can take various forms, including:

Returning an item you have stolen or know was stolen, in exchange for cash or store credit.
Purchasing an item for $100 at Store B and returning it to Store A for $200.
Forging a receipt to falsely claim you purchased an item that you actually stole.
Walking into a store, taking an item off the shelf, and immediately returning it to customer service for a refund.

Is “Return Fraud” a Crime in California?

Yes, return fraud is considered a criminal activity in California and can result in theft or shoplifting charges [2.]. Common return fraud schemes include returning stolen or altered merchandise for cash or store credit, such as:

Receipt fraud: Using forged, found, or altered receipts to return stolen items.
Price switching: Changing price tags or labels to return items at a higher value.
Price arbitrage: Repackaging items in cheaper boxes to gain a higher refund.
Bad check or credit card fraud: Using stolen credit cards or checks to purchase items for return or resale.
Employee fraud: Collaborating with a store employee to steal or return merchandise.

According to the National Retail Federation, more than 8% of all retail returns in 2018 involved fraud. In California, engaging in return fraud can lead to criminal charges such as petty theft, shoplifting, or grand theft.

“Theft under Penal Code 484 is defined as intentionally and unlawfully taking property with the intent to permanently or substantially deprive the owner of the use, enjoyment or value of that property.”

What are the Penalties for Return Fraud?

Return fraud, refund fraud, and return theft are all illegal and are considered forms of theft [3.]. While some may view these actions as a “victimless crime,” they are prosecuted as theft because they involve defrauding stores and online platforms.

Return fraud is treated similarly to other theft crimes, and penalties can vary depending on the location but may include:

Jail time
Significant fines
House arrest
Probation
Community service

For instance, in 2019, a Florida woman was charged with defrauding T.J. Maxx out of $160,000 in a handbag scam involving return fraud. She purchased expensive designer handbags and knockoffs from Amazon, switched the tags, and returned the knockoffs to T.J. Maxx for a full refund.

“Many stores and eCommerce companies have struggled to combat return fraud, as it is very difficult to detect, and harder still to prevent because the regular refund policy often remains in effect even when fraud is detected.”

Defense Options if You Are Accused of Return Fraud

If you’re accused of return fraud, several defense strategies may be available to you, such as proving a mistake was made, demonstrating a lack of intent, establishing identity confusion, or showing that you were wrongfully charged. Return fraud cases typically involve two key steps:

Acquiring the goods through theft, fraud (such as switching price tags or repackaging), or purchasing stolen items.
Returning the stolen or altered goods without a receipt, with a fake or found receipt, or after fraudulent repackaging.

Having a strong defense is crucial to challenging these accusations and protecting your rights.

Get a Free Lawsuit Evaluation With Our Lawyers

The Litigation Group at Schmidt & Clark, LLP is an experienced team of trial lawyers that focuses on the representation of plaintiffs in lawsuits. We are handling individual litigation nationwide and are currently accepting new legal challenges in all 50 states.

If you or a loved one was involved with these matters, you should contact our law firm immediately for a free case evaluation. You may be entitled to a settlement by filing a suit and we can help.

References:
1. https://seon.io/resources/how-to-fight-return-fraud/
2. https://www.shouselaw.com/ca/blog/fraud/is-return-fraud-a-crime-in-california/
3. https://www.unit21.ai/trust-safety-dictionary/return-fraud

Is Return Fraud a Crime in California?