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When Can My Business Refuse to Give a Full Refund?

When Can My Business Refuse to Give a Full Refund?

The obligation imposed on retailers to provide customers a full refund is not a golden rule that always applies. Read this article to find out why.

7th June 2019

Generally, products purchased by your customers will perform exactly as you imagine. However, you may run into a situation where customers will demand a full refund for a product that severely underperforms their expectations. Like the human population, the total number of retailers orbiting the globe is growing at an exponential rate. This growth is accelerated by an increased willingness by businesses to weave technology into their business structure. As a result, various retailers now operate exclusively over cyberspace and therefore, do not have a physical counter for returns. As a business owner, it is crucial to understand the circumstances in which it is justified for businesses to refuse customers a refund.

The Distinction Between Major and Minor Faults

Arguably, the ability of businesses to refuse a refund is determined by whether a defect constitutes as a ‘major fault’ or a ‘minor fault’. A major fault is a defect that would have deterred the customer from purchasing the product in the first instance. Furthermore, Fair Trading NSW considers products to have major problems when they are:

  • Unsafe
  • Significantly different from the sample or description
  • Do not perform according to representations made by your business

Alternatively, the Department of Industry, Innovation and Science describes minor faults as faults capable of repair within a reasonable time frame. A popular example of a minor fault is a loose piece of thread on an item of clothing.

How categorical faults impact on the ability to get a full refund

The contrast between major and minor faults is significant. This is because different remedies are provided for different categorical faults.

For major defects, the distribution of a remedy is based on consumer preference. Therefore, consumers request a refund, a replacement or have the product defect repaired (if possible). In this instance, retailers cannot refuse a full refund.

For minor defects, the distribution of a remedy is dependent on retailer discretion. Therefore, a customer must accept a repair offered by the retailer. What constitutes a reasonable time frame is a subjective question that is open for the Courts.

What if My Customer Cannot Provide a Receipt?

Businesses are under no obligation to provide a full refund when the customer cannot show that it was indeed them who entered into a transaction with your business. The most common way for customers to demonstrate proof-of-purchase is to provide a receipt. However, when the customer has misplaced their receipt, they can demonstrate proof-of-purchase through either:

  • Credit card statements
  • Lay-by agreements
  • Confirmation or receipt number from phone or online purchases

Additional Exceptions

According to Australian Consumer Law, businesses are entitled to refuse refunds when:

  • The customer has examined the product prior to purchase and did not discover the defects that they should have.
  • The business discloses the hidden defects prior to purchase
  • The customer has consumed the item in an ‘abnormal’ way or has used the item for an unreasonable time frame (e.g a very long time)

In summary, it is in the best interests for business owners to gain a sophisticated understanding of their basic legal obligations towards their customers. This newfound appreciation will attract both a stellar reputation for the company in the long-term and adequate protection against fraudulent behaviour. If you’re not sure whether you’re obliged to provide refunds to your customers, a Business Lawyer can advise you on your right to refuse.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Eric Zhang

Eric currently works in the content team as a legal intern for Lawpath. He is in his final year of a Bachelor of Commerce with a Degree in Bachelor of Laws (Majoring in Finance).