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If you run an online business, you will inevitably encounter customers who request a refund. It is important to understand your obligations under the Australian Consumer Law (ACL) to ensure you provide refunds when you are required to do so. In this article, we look at when you must provide refunds to your consumers, and when you can choose to offer refunds.

When You Must Provide a Refund

The ACL automatically applies to businesses that sell goods to customers, including goods that are sold online.

The ACL requires that your business allow a customer to return a product and provide a refund if the product has a “major problem“.

A product has a major problem if it:

  • has a defect that would have prevented the customer from purchasing the product;
  • is dangerous or unsafe;
  • differs significantly from the product description; or
  • does not have the functionality it should have.

If the customer purchased the faulty products directly from your business, it is your business that must provide the refund. You cannot simply refer the customer to the manufacturer.

Tip: If the problem is “minor” and fixable, your business can decide to fix the problem within a reasonable time instead of providing a refund.


When You Can Choose to Offer a Refund

Aside from providing reimbursements for major problems, you may also want to offer refunds for change-of-mind purchases. These are purchases where the customer wants to return a product not because it is defective or faulty, but for other reasons, such as they:

  • no longer need or desire the product;
  • prefer a cheaper product elsewhere; or
  • no longer like the product.

A common example of this is when a customer purchases a garment in the wrong size and wishes to return the item for a refund.

Whether you choose to offer refunds for change-of-mind purchases is a commercial decision for your online business. Some businesses do not offer these refunds because of the inconvenience it adds to their operations.

However, many online businesses have a broad refund policy that allows change-of-mind refunds in order to increase customer satisfaction and continued patronage. To further strengthen the customer experience, some online shops, such as The Iconic, also cover the delivery costs for all returns.

Even if you offer change-of-mind refunds, you can still stipulate certain requirements be met before they are provided. These may include that:

  • the customer presents the necessary proof of purchase;
  • the customer returns the goods in the same packaging; and
  • there is no wear and tear on the product.

You can also set other parameters on returns and refunds, such as requiring that the goods be returned within a certain time period after delivery to the customer.

If You Choose Not To Offer a Refund

If you do not offer refunds for change-of-mind purchases, your website should explain this clearly to the customer before they purchase any items.

You should use disclaimers on your website which state that your business will not take responsibility for ensuring the products are appropriate for the customer’s particular circumstances. You should also exclude warranties and guarantees to the extent that you can, subject to the ACL.

However, remember that your business cannot refuse to provide refunds when the products purchased are defective and faulty or have major problems.

Accordingly, you cannot use misleading statements that misrepresent consumer rights, such as:

  • “no refund on sale items”;
  • “refunds only available for returns within 30 days from date of purchase”;
  • “refunds only allowed on items returned in their original packaging”; or
  • “exchanges only”.

Website Terms and Conditions

To be best protected, you should have a comprehensive refund policy set out in your website’s terms and conditionsYour refund policy should reflect your obligations under the ACL for dealing with both major and minor problems. It should also state whether you offer refunds for change-of-mind purchases. If you do, set out the requirements which consumers must meet before a refund is provided.

If you run an online business that provides services to customers, ensure that your terms and conditions set out:

  • a process for review when a customer wants to dispute the quality or performance of the service; and
  • the circumstances in which refunds may be provided.

Key Takeaways

It is important that your online business has a well-drafted refund policy and terms and conditions document. These should clearly state when you will offer refunds for change-of-mind purchases. They should also align with your business’ obligations under the ACL.

If you need assistance with drafting your terms and conditions, or want to know more about your ACL obligations, contact LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page.


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