When you’re selling goods, it is important that you know what your legal obligations are to your customers when it comes to returns, refunds and exchanges.

There are many reasons a customer might want to return something they bought from you—from the product being faulty and not matching its description to the customer changing their mind or finding the item cheaper elsewhere.

Under the Australian Consumer Law (ACL), most products bought in Australia since 2011 will be covered by automatic consumer guarantees that promise the products will do what they have been said to do.

If an item you sell fails to meet these guarantees, a customer may be entitled to request a repair, replacement, or refund. Your obligations will depend on whether the problem is considered major or minor.

What Guarantees Apply To Your Products?

Each time a customer buys something, consumer guarantees will apply to that product.

As the seller, you guarantee that your goods:

  • Are of acceptable quality (this includes being safe, durable and without fault)
  • Are fit for the specified purpose
  • Match their description
  • Match the sample or demonstration model

You are also guaranteeing that:

  • You will honour any express warranties made; that is, any promises your business makes about the goods in relation to its quality, state, condition, characteristics, and performance
  • Your business has title to, and undisturbed possession of, the goods
  • There are no undisclosed securities on the goods
  • There is a means to repair the product and get spare parts for a reasonable time after purchase, unless the customer was advised differently

When Do You Have To Provide A Customer With A Remedy?

When there is a major problem with a product you have sold, a customer is entitled to request a free repair, return, refund or replacement. In some cases, they may even be able to claim reimbursement for damages and loss.

What Is A ‘Major Problem’?

It is important to know what a ‘major problem’ is so you can make sure your business responds appropriately when a customer comes to you with a problem.

A product has a major problem if:

  • It is not safe to use
  • It is considerably different to its description and/or to a sample or demonstration model
  • It doesn’t function the way you said it would or the way the customer asked for, and it cannot be fixed easily or in a timely manner
  • There is an issue with the product that would have stopped the customer from buying the product, had they known about it

If you have disclosed a defect to a customer before they bought the item, they will not be able to seek a remedy for that defect.

Returns

If someone believes that there is a problem with a product they have bought from you, they are entitled to return it. You will have to accept a faulty product even if its original packaging or labels have been removed and it has been used.

The customer seeking a return is generally responsible for organising it, as long as it is reasonably easy to do so. It is important to note that, if a problem is found, you may be required to reimburse the customer for reasonable postage or transport costs.

If there is significant difficulty or cost involved, you may be required to collect the products within a reasonable time at no cost to the customer. This situation may arise if the product is too big, too heavy, or hard to remove. For example, dishwashers, washing machines or dryers that have been installed, or large pieces of furniture such as beds.

At the end of the day, if there is no issue with the product, you can ask the customer to repay any costs incurred for transport and inspection processes. You will need to provide the customer with a quote of how much this could cost before you pick up the products. This estimate should not be inflated as a tactic to deter customers from seeking reparation for defective products.

When deciding whether your business should ask for repayment, you may wish to weigh the financial benefits against customer satisfaction with your service offering.

Refunds And Exchanges

Customers may also choose to request a refund or exchange for products with a major problem.

If they choose to exchange the product, the replacement product must be similar to the original product. If they opt for a refund, the value of the refund must be equal to the price they initially paid, and must be processed in the same form as the original payment.

When issuing a refund or exchange, you may take into account the amount of time that has passed since the product was purchased. In particular, you may wish to consider:

  • the type of product
  • how customers are likely to use it 
  • the length of time and amount of use the product could reasonably be expected to have withstood

Repairs

If an issue with a product is not a major problem, you may consider offering a free repair for that item. Customers must accept the free repair offered, and the repair must be conducted within a reasonable time.

If you cannot fix the problem or have not been able to give the free repair within a reasonable time, your customer may choose to:

  • Repair the product elsewhere and pass the costs on to you;
  • Ask for a replacement or refund; or
  • Recover compensation for the decreased value of the product below the price they originally paid.

Under the ACL, you may also need to provide your customer with a repair notice before you take the goods to be repaired. This must be done in the following circumstances:

  • User-generated data: If the products are able to retain user-generated data (e.g. mobile phones, laptops and computers, gaming devices and consoles, or other similar electronic goods)
  • Refurbished goods or parts: If refurbished goods are supplied in lieu of repairing the defective product, or if refurbished parts are used to repair defective goods.

Reimbursement For Loss Or Damages

You may be required to reimburse customers for damages or loss suffered if you could have reasonably anticipated the problem occurring (e.g. you set a guarantee that you could not meet).

The aim of reimbursement for loss or damages is to put your customer into the position they would have been in if there had not been a problem with the product purchased. You do not need to pay for damages or losses that are unrelated to your products.

When Are Customers Not Entitled To A Remedy?

There are some circumstances in which you are not legally obligated to provide customers with a return, refund, exchange or repair.

If a product is bought specifically for business use and is worth more than $40,000 (e.g. heavy machinery), you are not required to provide repairs, replacements or refunds. An exception to this is if the product is a vehicle used for goods transportation.

You are also able to refuse a return, refund, exchange or to repair a product if the customer changed their mind or contributed to the problem through misuse.

One thing you may wish to consider if you don’t accept returns for change of mind is your business’ relationship with its customers and how to keep them happy so they do return.

In addition to this, if the customer is unable to show proof of purchase (e.g. a receipt, bank or credit card statement, or confirmation number), you will not be required to provide a remedy for defective products.

What Is The Law Around “No Refunds” Signs?

Stating that there are “No Refunds”, “No Refunds on Sale Items”, or making similar statements, is unlawful. This is because it tells your customers that they will not have access to appropriate consumer law remedies, even if the goods they purchased have a major problem.

However, you may have a sign stating that you do not accept refunds for incorrect choice or if the customer has a change of mind.

Speak To A Lawyer

Understanding your obligations under the ACL is important when running a business, and you need to get it right. 

If you’d like some help drafting your store’s T&Cs or making sure you’re prepared to respond appropriately if a problem with your product arises, get in touch with our friendly team of experienced lawyers. 

For a free, no-obligations consult, reach us on 1800 730 617 or at team@sprintlaw.com.au.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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