Can you legally refuse to offer a refund?

LegalVision

1st Feb 2017

By Claudette Yazbek

Consumers often purchase goods that, for one reason or another, may be unsatisfactory. The Australian Consumer Law (ACL) contains a number of consumer guarantees, which are promises that businesses automatically make to consumers, regardless of any terms of sale or warranties the business provides. The ACL also includes a clear set of rules outlining what a business is required to do if it falls short of the consumer guarantees. So, when are you, as a retailer, required by law to offer a customer a refund, repair or replacement?

Who is a supplier and manufacturer under the ACL?

Both suppliers and manufacturers have obligations under the ACL. A supplier is a retailer who sells the goods and a manufacturer makes or puts the goods together (an importer is also a manufacturer for the purpose of this definition).

Retailers have obligations under the ACL as ‘suppliers’ and therefore, cannot avoid a consumer’s complaints by passing the buck to the manufacturer. However, a retailer can go after the manufacturer if the manufacturer has breached their following obligations:

• goods are of acceptable quality;
• goods match the description the manufacturer provided;
• spare parts and repairs are provided where applicable; and
• any express warranties provided by the manufacturer are complied with.

When do I have to fix a problem with my goods?

The key consumer guarantees that apply to retailers include:

• goods are of acceptable quality;
• goods match any description provided; and
• goods match the sample or demo model.

For example, if a consumer purchases a laptop, they are guaranteed under the ACL that the laptop is safe, free from faults, is of acceptable quality and functions as a laptop. If the laptop breaks down after a month, it would be reasonable to expect a retailer to provide spare parts and/or repairs depending on the severity of the fault.

A retailer must provide a consumer with a remedy or solution if the goods or services don’t meet these guarantees. The type of solution a retailer must provide to a customer depends on the seriousness of the problem with the product – and whether or not the problem is a “major failure”. A “major failure” includes when the product:

• has a defect that would have prevented someone from purchasing it;
• is dangerous;
• doesn’t match the product description; or
• lacks the functionality it should have.

If the problem with the product is something major, a consumer has a right to ask for either a replacement or a refund. Whereas, if the problem is minor that the retailer can fix within a reasonable time (for example, a missing cable or power adapter), the retailer may choose whether to repair, replace or refund the item.

A retailer cannot exclude, restrict or modify the consumer guarantees when they sell goods or services to the public. For example, in 2013 the ACCC took action against Apple following concerns that Apple staff were not offering customers a refund, repair or replacement in circumstances where they were required to take action under the ACL. Apple subsequently entered into a court enforceable undertaking, acknowledging that the ACL may provide for remedies beyond 24 months for a number of its products.

Importantly, a retailer’s consumer law protections extend to all businesses selling goods to Australian consumers, which may include overseas retailers selling goods online to Australian consumers.

How long does a consumer have to return a product?

A consumer cannot demand a refund if the problem is minor and the retailer can repair the product within a reasonable time. What’s reasonable will depend on the following:

• the type of good;
• how a consumer would use the goods;
• price paid for the goods;
• length of time a consumer would use the goods; and
• how often a consumer would use the good before a problem appears.

No refund signs

Any sign or statement that limits, or seems to limit, a consumer’s rights is unlawful because it suggests that a consumer cannot seek a refund under any circumstances, even when there is a problem with a product. Problematic signs include:

• ‘No refund’
• ‘No refund on sale items’; and
• ‘Exchange or credit note only for return of sale items’.

If a company fails to comply with the consumer guarantees, they face a penalty of up to $1.1 million, while an individual faces a penalty of up to $220,000.

What if the consumer changes their mind?

Businesses should ensure they always provide a proof of purchase (such as a receipt) for any goods sold. A business is not obligated to offer a refund to a consumer for a change of mind.

However, just because retailers are not legally required to offer change of mind returns, doesn’t mean they can’t. Outside of the statutory requirements, retailers can create their own return policies so long as they do not breach or override the consumer guarantees. A number of major retailers offer change of mind returns within a specific time period, provided the item is still in a saleable condition, and the consumer provides a proof of purchase.

Retailers should familiarise themselves with their obligations under the ACL to avoid falling foul of the legislation. It’s also good practice for online retailers to include a link to the consumer guarantees in a prominent location at checkout, or include these in your terms and conditions. Ultimately, retailers will benefit from resolving issues quickly as consumers will be more likely to return and offer a positive endorsement.

Claudette Yazbek is LegalVision’s Communications Manager and Lawyer. She has a keen interest in start-ups, and writes extensively about the legal, political and business challenges they face.