In Short
- Consumer guarantees under Australian law cannot be excluded by your store policies; all businesses must comply.
- Customers can seek remedies for major or minor failures, including refunds, replacements, or contract termination.
- Misleading refund policies risk severe penalties, so clearly distinguish statutory rights from voluntary warranties.
Tips for Businesses
Ensure your refund policies comply with Australian Consumer Law by respecting consumer guarantees and avoiding misleading statements. Train staff on legal obligations and document refund procedures clearly. Use voluntary warranties carefully, making clear they supplement legal rights, and communicate terms accurately to protect your business and build customer trust.
Table of Contents
- Understanding Your Legal Obligations
- Consumer Guarantees Override Store Policies
- Remedies for Faulty Goods and Services
- Misleading Refund Policies Are Illegal and Penalised
- Voluntary Warranties Supplement But Cannot Replace Guarantees
- Best Practices for Compliance
- Key Takeaways
- Frequently Asked Questions
For small business owners, understanding the legal requirements around refunds and money-back guarantees is crucial for compliance and avoiding costly penalties. Many businesses unknowingly breach Australian Consumer Law by implementing misleading refund policies or failing to honour statutory consumer rights. The intersection of consumer protection legislation and business operations creates complex obligations that require careful navigation to ensure both legal compliance and commercial viability. This article will explain how to structure refund and money-back guarantee policies that comply with Australian Consumer Law and protect your business from penalties.
Understanding Your Legal Obligations
Under the Australian Consumer Law, which forms part of Schedule 2 of the Competition and Consumer Act 2010, every sale creates automatic legal obligations that your store’s policies cannot exclude or limit. These statutory rights exist regardless of what your refund policy states, making it essential to understand what the law requires rather than relying solely on your preferred business practices.
Consumer Guarantees Override Store Policies
Consumer guarantees automatically apply to every sale, and your store policies cannot limit or refuse them. These guarantees require your goods or services to meet acceptable quality requirements, fitness for purpose obligations, matching description requirements, and clear title provisions, ensuring proper ownership of the purchased goods.
Many businesses display signs or implement policies that inadvertently breach consumer law through statements such as “no refunds under any circumstances,” “no refunds on sale items,” “all sales final,” or “store credit only.” These policies are fundamentally misleading because they suggest consumers have no rights when a business breaches consumer guarantees. Even when your policy explicitly states otherwise, consumers remain entitled to appropriate remedies when goods fail to meet legal standards. The law recognises that consumers cannot contract out of these consumer guarantees, regardless of what policies businesses attempt to implement.
Continue reading this article below the formRemedies for Faulty Goods and Services
If you fail to provide goods or services that comply with consumer guarantees, your customers may have remedies under the Australian Consumer Law, depending on whether the law considers your non-compliance a major or minor failure.
What is a Major Failure?
If you supply goods or services as part of your business, the law will treat your failure to comply with consumer guarantees as a “major failure” in any of the following circumstances:
- a reasonable consumer would not have bought the goods or services if they knew about the full extent of the failure;
- the goods or services are significantly different to any provided description or demonstration model;
- you supply goods or services that are not fit for the purpose they are normally supplied for, or any purpose your customer told you about, and you cannot make them fit for purpose within a reasonable time;
- in the context of goods, the goods are unsafe; or
- in the context of services, the services are not likely to produce the result that your customer wanted and made you aware of, and cannot be remedied to achieve such a result within a reasonable time.
What is a Minor Failure?
A minor failure is any failure to comply with a consumer guarantee that is not a major failure. For example, if you sell clothes with missing buttons, this would fail to meet the acceptable quality guarantee. However, because the defect can be remedied within a reasonable time, it would only constitute a minor failure, not a major one.
Remedies for Major and Minor Failures
For major failures where you supply goods, your customers can either reject the goods or obtain a partial refund based on the loss in value of the goods due to the defect. Where your business provides services, your customer can terminate their contract with you or recover the loss in value of the services from you.
In the event of minor failures, your customers may require you to rectify the issue within a reasonable timeframe. In the context of goods, you may need to repair or replace them. For services, you may need to provide the services again.
If you fail to remedy a minor failure, your customer can hire someone else to fix it, and you must cover any reasonable costs they incur. In the case of goods, your customer may reject them. For services, your customer can terminate their contract with you.
When Can a Customer Reject My Goods?
As mentioned above, your customers may be able to reject your goods for major and minor failures under the Australian Consumer Law. If a customer is entitled to reject the goods, they can choose between receiving a full refund or a replacement. If you provide a refund, you must also refund any shipping costs that the customer paid.
A customer may only reject your goods within the period of time that it would be reasonably expected for your goods to comply with the relevant consumer guarantee, taking into account the type of goods, how they are used, how long they can reasonably be used for, and the amount of use they can reasonably get. For example, if a customer buys milk from you and it spoils after the use-by date, they cannot claim a refund from you.
Other circumstances that prevent customers from rejecting your goods include:
- when your customer loses, destroys or disposes of the goods;
- when the goods are damaged after delivery, unrelated to the condition they were in when you supplied them; or
- when the goods have been permanently fixed to property and cannot be removed without causing damage.
Misleading Refund Policies Are Illegal and Penalised
The Australian Competition and Consumer Commission treats misleading conduct about consumer rights with extreme seriousness, imposing substantial penalties on businesses that mislead consumers about their refund entitlements. Current penalty structures include fines up to $1.1 million for businesses and $220,000 for individuals, reflecting the legislation’s intent to ensure businesses cannot profit from misleading consumers about their legal protections.
You should ensure that your refund policies acknowledge consumer guarantees without attempting to exclude them. You should also clearly explain voluntary benefits beyond the legal minimums and use accurate language regarding time limits and conditions. Before implementing your policies, it is advisable to have them reviewed by a lawyer to minimise the risk of non-compliance and protect your business from potential regulatory action.
Voluntary Warranties Supplement But Cannot Replace Guarantees
Money-back guarantees and voluntary warranties represent additional promises you make beyond legal requirements, potentially including extended warranty periods, “satisfaction or money-back” guarantees, enhanced return policies, or priority customer service. These voluntary commitments can differentiate your business and build customer confidence when properly structured and communicated.
When offering voluntary warranties, remember that they supplement, rather than replace, consumer guarantees, meaning consumers retain all legal protections regardless of your voluntary promises. If you offer these warranties, they will become contractual obligations that you must honour, making clear communication essential. Well-designed voluntary warranties can provide commercial benefits by distinguishing your business in competitive markets while building customer loyalty through enhanced service levels.
Best Practices for Compliance
One way to help you comply with the requirements under the Australian Consumer Law is to provide your staff with comprehensive training covering basic consumer guarantee rights, your legal obligations for refunds, how voluntary warranties work alongside legal rights, and proper procedures for handling refund requests. Additionally, you should maintain clear documentation and processes for assessing refund claims and processing statutory remedies to demonstrate your compliance efforts in the event of disputes.
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Key Takeaways
Understanding and complying with consumer refund laws protects your business from costly penalties while building customer trust through transparent, legally compliant practices.
If you need help reviewing your refund policies, ensuring legal compliance, or structuring voluntary warranties that benefit your business, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Requiring original packaging for statutory refunds is misleading and potentially unlawful. While you can set this requirement for voluntary return policies covering change of mind returns, consumers claiming statutory remedies do not need original packaging, provided they meet other legal requirements.
Refusing to return or refund claims where you have failed to comply with a consumer guarantee can result in ACCC enforcement action and substantial penalties. Meanwhile, consumers may pursue legal action through small claims courts or tribunals. The combination of regulatory penalties and potential civil liability makes proper assessment and compliance essential.
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