Business development · 17 September 2018

A guide to product returns and the consumer contract for online retailers

A returns policy can certainly influence whether a consumer will use a particular retailer again

As an ecommerce business, its crucial to get your product returns policy right. Here, Grid Law founder David Walker considers the consumer contract from an online retail perspective.

I was interested to read that 2082 could be the year that ecommerce finally kills off the high street for good. Who knows whether this will ever happen, but it got me thinking – I can’t actually remember the last time I advised a client about setting up a bricks and mortar retail business.

It seems like everyone wants to be online, so even if the high street isn’t completely wiped out, shopping in the future will be a very different experience to what it is now.

Consumer laws will have to keep up with these changes but from a legal perspective, making a purchase online is already a very different experience to visiting a store.

This is because when you visit a store you can examine the products, discuss your needs with the staff and make an informed decision about whether or not to make the purchase. When you buy online, your opportunity to do this is extremely limited so the law compensates by giving consumers far more rights to return products if they’re not what was expected.

When I’m advising online retailers, it’s these returns policies that cause the most confusion and controversy.

Just think about your own, vastly different experiences when you buy products online. Some businesses are easy to deal with and make returning products simple whilst others are the complete opposite. They make you jump through so many hoops you wonder whether it’s worth the effort.

So, why is there such inconsistency between businesses?

What does the law say about returns policies?

As an online retailer, you need to know what your minimum obligations are, and this is what we are going to look at in this article. But, before we do, I want to say that this is huge topic and I can’t cover every eventuality here. So, I’m just going to look at this from a business to consumer (B2C) perspective when selling only products online.

Different rules apply when you’re selling a mix of products and services, or making digital content available for download or streaming. If you have any questions about these, please feel free to email me and I’ll happily answer them for you.

When does a consumer have the right to cancel their contract and return the goods they purchased?

A consumer’s right to cancel their contract and return the goods they purchased doesn’t apply to all transactions. This right applies when:

  • The contract is between a trader (business) and a consumer. It doesn’t apply to business to business (B2B) contracts; and
  • It’s not an excluded contract. (There is a long list of excluded contracts but most of these you wouldn’t think of as goods anyway, for example, financial services, gambling contracts and rental accommodation to name but a few); and
  • It is a “distance” or “off-premises” contract. The law gives very detailed explanations of what “distance” and “off-premises” mean but in most cases, it’s going to be an online purchase.

There is also a long list of excluded goods that cannot be returned. These are products such as those made to a customer’s specification or that have been personalised; products that are likely to rapidly deteriorate or expire (for example food); and products sold at auction.

Sometimes a customer will have the right to return products but will lose this right. For example, products such as cosmetics will be sealed for health and hygiene reasons. If a customer breaks the seal and opens these products they cannot be returned.

If a customer has the right to cancel the contract they can do so without giving any reason for this. It’s perfectly acceptable for them to simply change their mind about the purchase.

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How long does a consumer have to cancel their order and ask for a refund?

The standard cancellation period starts when the contract is entered into and ends 14 days after the goods come into the possession of the consumer (or the person who the consumer said they were to be sent to, for example, if they were a gift and sent to someone else).

If the order is delivered in multiple consignments, the cancellation period ends 14 days from when the final consignment is received.

When counting the number of days, weekends and public holidays are included but if the last day of the cancellation period is a weekend or public holiday, it will be extended to the next working day.

A word of warning here. As an online retailer, you have a legal duty to provide your customers with a certain amount of pre-contract information. This includes explaining that they have the right to cancel their order (assuming the conditions above apply), any conditions attaching to this right, the time limits for exercising these rights and the procedures for exercising it.

If you don’t provide all of this information the cancellation period can be extended by 12 months.

How should a customer exercise their right to cancel their order?

There’s no set way in which a consumer has to indicate their right to cancel their order. Many retailers put a form on their website for consumers to complete but they don’t have to use it. Instead, consumers can write, email, telephone or simply send the goods back so long as they have made it clear that they are cancelling their contact.

An important point to note here, and one that retailers often get wrong, is that the cancellation must be made before the end of the cancellation period, but the goods don’t have to be returned to the retailer by this deadline.

What is the time limit for returning products?

The time limit for returning the goods (or handing them over to the trader or courier if they are being collected) is 14 days from when the consumer told the retailer they were cancelling the contract.

This poses another legal question. Who is responsible for the goods between the time when the contract has been cancelled and when the goods are returned?

The law still isn’t clear on this point but most likely the responsibility is on the consumer to take reasonable care of them. This means they should keep them safe and then, when they are returned, ensure they are packed appropriately and sent back using the postal service or a reputable courier.

It seems unlikely that the consumer would be liable if the goods were damaged or lost in transit.

When returning products, it’s the consumer’s responsibility to pay the cost of the return postage unless agreed otherwise with the retailer. For example, the retailer may offer free returns to make it easy for the consumer to return their products.

How much does the retailer have to refund the customer and when does the refund have to be made?

Once cancelled, the retailer must refund to the consumer everything the consumer paid to the retailer with a few exceptions.

Where the consumer has paid for delivery, the retailer must refund the delivery costs but only needs to refund standard delivery costs. If the consumer paid extra for, say, next day delivery, the retailer doesn’t have to repay this additional amount.

The retailer is also entitled to make deductions in the value of the goods for any use the consumer has made of them. It can be difficult to assess what deduction can be made and when, but as a general rule of thumb, consumers should only do with the goods what they would do in a shop. For example, if they have purchased clothes they can try them on without removing tags but they shouldn’t wear them for any longer.

When a refund is made, it should be made as soon as possible, but in any event within 14 days of the retailer receiving the goods back. The refund must be made using the same method by which the payment was originally made (unless the consumer has agreed otherwise).

In my experience, it’s extremely rare for a disputed returns policy to lead to legal action. However, they certainly influence whether a consumer will use a particular retailer again, so returns policies are one of the most important policies for an online retailer to get right.

If you have any questions about trading online and complying with your legal obligations to consumers, please feel free to email me at editors@businessadvice.co.uk and I’ll happily answer them for you.

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ABOUT THE EXPERT

David Walker is the founder of Grid Law, a firm which first targeted the motorsport industry – advising on sponsorship deals, new contracts and building of personal brands. He has now expanded his remit to include entrepreneurs, aiding with contract law, dispute resolution and protecting and defending intellectual property rights.

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