Online shopping: Retailers' fight against abuse of consumer return rights

Some consumers routinely order more items than they intend to keep, only to return the unwanted items. Some retailers also see examples of clothing being returned after having been used. This has caused some large retailers to change their terms over the past years to be able to block purchases made by consumers who engage in such “return abuse” practices. In some cases, the retailer will decide for itself when the return practices are deemed abusive, but it will usually be in cases where the consumer returns such large volumes that he or she may be characterised as a “serial exchanger” with a highly unusual return pattern.

The handling of “serial exchangers” raises several questions of law - not only from a consumer and privacy law perspective but also from an ESG perspective.

Does consumer law protect “serial exchangers” from being blocked?

Freedom of contract is a fundamental principle of Danish law, and retailers are therefore generally free to decide who to contract with and on what terms. The freedom of contract is subject to some restrictions, for instance where specific legislation provides for an obligation to contract (e.g., for utilities), and where consumers are protected against discrimination based on e.g., gender, race, or place of residence. But if the retailer complies with these rules, there are no contract law restrictions that prevent the retailer from refusing to deal with consumers who have an unacceptable shopping track record, particularly if the retailer has previously pointed this out to the consumer and imposed contractual terms to prevent this.

However, the retailer’s return policy may constitute an unfair contract term that cannot be enforced, for instance due to the criteria used by the retailer to block consumers, the consequences of this and/or lack of transparency, particularly if the onerous terms have not been clearly pointed out the consumer. For this purpose, it makes no difference that the terms have been accepted by the consumer. The consumer is considered the weaker party to the contract, and it should therefore be considered whether the terms may cause a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. In that case, there is a risk that the contract terms may be set aside as invalid, making the blocking of the consumer unenforceable. In other cases, the terms may not be illegal per se, but the way in which they are enforced by the retailer is unfair, and such practice can also be problematic.

Retailer Cannot Block Contracts With Serial Exchangers, Must Honor Existing Contracts

Even if the blocking of a “serial exchanger” is justified, the retailer cannot block contracts already made with that consumer as this would conflict with the principle that contracts are legally binding. The retailer will therefore have to deliver the products in accordance with the existing contracts and will probably not be able to change its return terms or policies for completed transactions with reference to previous return abuse and the consumer’s acceptance of such terms. 

Finally, it is important to distinguish between the consumer’s statutory two-week right of cancellation under the Danish Consumer Contracts Act and any extended right of return offered by the retailer on a voluntary basis. While it is the retailer’s own decision to offer consumers an extended right of return - and, if applicable, to restrict such right - consumers’ statutory right of cancellation cannot be waived or restricted. It means that the retailer cannot, as a rule, deny the consumer the right to return products purchased if the requirements of the Danish Consumer Contracts Act are met. Accordingly, the right of withdrawal cannot be restricted based on a previous unusual return pattern.

If, instead of blocking the consumer as a "serial exchanger" (and thus rejecting subsequent transactions), the retailer wants to offer the consumer less favourable shopping terms than other consumers - e.g. without an extended right of return and shipping and/or return shipping at the consumer’s own expense - it should be considered if this can be handled in practice, since separate terms for “serial exchangers”, documentation of non-discrimination and a transparent process are just some of the issues that will have to be addressed by the retailer.

Can retailers process personal data of “serial exchangers” to enforce return abuse initiatives?

When a consumer buys a product online, the retailer will collect and process a range of the consumer’s personal data, including identity information and contact details, payment details, purchase history, and information about items delivered and (if applicable) returned. This information is usually collected to complete the transaction, ensure timely delivery and make it easy for the consumer to return products. If, however, the retailer uses the information to determine whether the consumer is engaging in return abuse practices, the purpose of the collection differs from the purpose for which the information was originally collected. The retailer should therefore consider whether such further processing is compatible with the original purpose. This may very well be the case but will depend, inter alia, on how the processing takes place and which information has been provided to the consumer in this respect.

The retailer must then ensure that there is a (separate) legal processing basis for using the personal data to handle the abusive practices. For this purpose, it will probably be difficult to argue that the information is necessary to ensure compliance with the contract - even if the consumer has accepted return abuse restrictions - as the possibility of using the contract as a basis for processing is generally narrow. Also, the processing is not necessary for performance of the specific contract, including any accepted return policy, but rather to determine if the retailer wants to contract with the relevant consumer in the future. Instead, it may be argued that the processing is based on the retailer’s legitimate interest in e.g. reducing its waste of resources, preventing abuse of the right of return, streamlining the return process and cutting the costs of return. The retailer must, however, carry out a balancing-of-interests test, weighing the consumer’s interest in the processing not taking place against the retailer’s interest as outlined above. This is because certain conditions must be fulfilled, and the result of the balancing test will depend i.e. on the type and amount of information, which information is provided to the consumer, whether the same purpose can be achieved by less intrusive methods, and the possibility for the consumer to object to the processing.

In addition, there are several other privacy considerations to be taken into account, including timely deletion of return patterns, processing transparency, risk assessment and possibly data protection impact assessment (DPIA), whether profiling of the consumer is taking place and, if so, whether the blocking constitutes an automated decision with legal effects for or other significant impact on the consumer. The retailer should therefore carefully consider how data protection is afforded, whether the retailer's return abuse policy and the enforcement of it need adjustments, and whether all the contemplated initiatives are lawful from a privacy perspective.

Can a return abuse policy be part of the retailer’s ESG strategy?

A frequently used argument for blocking "serial exchangers" is the huge waste of resources involved in frequent returns, including in terms of transport, packaging, labelling, etc., and it may therefore be considered to incorporate the return abuse policy into the ESG strategy and the initiatives to support this strategy. The initiatives will then fall in the “E” category, referring to “Environment”, i.e., actions intended to lower the company’s environmental footprint.

In principle, nothing prevents return abuse policies and initiatives to enforce such policies from being part of the retailer’s ESG strategy. If, however, the policies are mainly intended to reduce the retailer’s costs, it would not be fair to consider them as separate ESG initiatives, but they may of course support the retailer’s overall ESG strategy and be considered as an element of achieving the ESG objectives.

If the retailer wishes to use its ESG initiatives for marketing purposes and highlight its return abuse policy and blocking of “serial exchangers” as a more sustainable use of resources to influence consumer behaviour in a positive direction, it is important that the retailer’s messages carefully worded in fair and balanced way without exaggerating the effect achieved. The retailer should further be able to document the actual impact of the initiatives and, if necessary, to adjust its messages on a regular basis. Otherwise, the retailer risks violating the Danish Marketing Practices Act, notably the prohibition of misleading advertising.