New data from the National Retail Federation shows that an estimated 16.9% of purchases by volume were returned by buyers in 2024.
That’s not great. But then again, some return volume is probably inevitable for sellers in just about every vertical. What about when we drill down and focus on fraudulent return requests, though?
Of the $890 billion worth of merchandise returned in 2024, roughly 15% — one-sixth of the total — involved some form of fraud.
To put this in more approachable terms: you can expect to process about $170 worth of returns for every $1,000 in merchandise sales. Of that $170 figure, you’ll probably lose a little over $25 to fraud.
But what exactly is return fraud? How does it differ from legitimate returns? In this guide, we’ll take a closer look at how fraudulent returns work and explore what you can do to identify and prevent return abuse from harming your business.
Scammers commit return fraud when they abuse your return policy for financial gain. For example, fraudsters may circumvent a store’s refund policy by misrepresenting how they acquired the item, or by intentionally returning used, damaged, or stolen items.
Return abuse is a form of post-transaction fraud that causes merchants to lose out on revenue and inventory. Processing fraudulent return requests also ties up valuable operation resources that could be allocated elsewhere.
Read MoreScammers can employ a lot of different tactics to secure refunds they are not entitled to. One of the most common return fraud tactics is “wardrobing,” which occurs when scammers return worn clothing or used items for a full refund.
Returning stolen or shoplifted merchandise for a refund, returning empty boxes, or buying a cheap item and returning it as a more expensive one — the latter of which is known as merchandise exchange or return arbitrage — are also tactics used by fraudsters.
Read MoreReturn fraud is a significant issue. Roughly one in every six dollars that cardholders request to be refunded is believed to be part of a fraudulent return. This ultimately costs merchants over $100 billion per year.
For eCommerce merchants, the situation is even more dire. Items purchased online are returned nearly three times as often as store-bought merchandise. This makes returns — and return fraud — an especially thorny issue for online sellers.
Read MoreSophisticated return fraud schemes are common in the wild. Targeted merchants, especially those with intentionally lax return policies, can lose hundreds of thousands or even millions of dollars.
From a college student-turned-fraudster to a group of five Washington state sisters running a sophisticated scam ring, here are a few high-profile examples to illustrate what return fraud looks like in real life.
Read MoreReturn fraud is subtle and often difficult to spot. But, there are some key red flags and behavioral patterns that merchants can use to detect it.
Indicators like an excessive number of returns from a single customer, the use of different credit cards with a shared shipping address, or returning items without original packaging, for example, can indicate that something is amiss. Looking for these and other clues can help you distinguish between legitimate and abusive returns. This is the best way to keep fraudsters — and fraud losses — at bay.
Read MoreTaking proactive, preventative measures can help you stop return fraudsters in their tracks.
For example, implementing a crystal-clear return policy, requiring original receipts for all returns, charging a restocking fee for opened items, and using technology to keep track of customers. These and other practices can help deter frivolous returns and block would-be return fraudsters from checking out in the first place.
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Yes. Return fraud is a form of theft or fraud. In severe and prolific cases, you may face jail time, along with court-ordered fines, penalties, or restitution, for return fraud.
Merchants can fight return fraud by drafting clear and unambiguous return policies and by deploying fraud detection tools at account creation, login, and checkout,
If you are caught returning the wrong item, the merchant may reject your return request or ask you to return the correct item instead. In severe cases, the seller may ban you from the store, file a police report, or even file a civil lawsuit against you.
Receipt fraud, receipt switching, price switching, “shoplisting,” wardrobing, and returning shoplifted or stolen goods are all common examples of return fraud.
It’s a very serious problem. For every $1 billion in sales, the average retailer also incurred $165 million in merchandise returns. What this means is that for every $100 in returned merchandise, the average merchant loses $10.40 to return fraud.
Technically yes. It’s technically a form of larceny, and consumers who are caught committing return fraud may be subject to heavy fines and penalties. They may even be subject to jail time, depending on the severity of the crime.
Refund fraud occurs when scammers abuse or circumvent a merchant’s return policy to illegitimately acquire cash, goods, or store credit for free.
The most common refund scheme reported by retailers is “wardrobing.” This refers to the practice of purchasing an item, with the intention of using it once or twice, then returning it for a full refund later.
Yes. Return fraud is hard to prove, especially when merchants have generous refund and return policies. This is because it’s exceptionally difficult to determine where an item was purchased or whether it was used.
