Ecommerce Return Fraud: How to Spot It and Stop It

When you're running an online business, returns are a natural part of your operations. Unfortunately, more and more return claims aren't entirely honest. In fact, 9% of all returns today are fraudulent, according to NRF research.

Most customers are honest and do the right thing. You don't want to crack down on frivolous fraudsters at the expense of your loyal and genuine customers.

In this article, we're going to show you how you can stop fraud without frustrating your quality customers. We'll break down the common types of return fraud, warning signs, where Australian law stands, and a practical prevention plan to stop fraudsters.

Key Takeaways

• Return fraud involves a customer deliberately deceiving and taking advantage of a store's return policies for financial gain
• Reports suggest that 9% of returns made to stores are not legitimate
• Return fraud is tied to deliberate deception; return policy abuse involves customers exploiting a return policy to the letter in ways it wasn't intended to be applied
• Return fraud is illegal in Australia and can involve criminal prosecution
• Preventing returns fraud is best done through strong return policies and encouraging good behaviour from customers, instead of blanket crackdowns

What Is Ecommerce Return Fraud?

Ecommerce return fraud is when someone abuses a store's returns process for financial gain. In practice, a genuine return might involve sending an unworn dress back due to it being the wrong size. A fraudulent claim, on the other hand, might involve a person returning a worn dress and claiming it's unused. Some fraudsters might even send back an empty box for their returns claim.

Unfortunately, bad faith returns are on the rise. According to an NRF report, 9% of returns are fraudulent, and 85% of businesses are now using AI to fight back against these claims. Any decent returns management platform should have tools to aid in the fight against fraudulent returns. This can include analytics that show your most returned items and return restrictions.

Return Fraud vs Return Policy Abuse: They're Not the Same Thing

Though they sound similar, return fraud and return policy abuse are two different things and require a different approach when dealing with them.

Returns fraud is a crime and involves deliberate deception for gain, usually financial in nature. This might involve returning empty boxes, swapping items, stolen goods, or making fake "not received" claims.

Return policy abuse, meanwhile, is when a generous policy is exploited. This can consist of wardrobing, bracketing, then returning most of an item, and serial returning. Return policy abuse usually isn't a crime, but it can still be costly to businesses.

Since they are two different things, return fraud and return policy abuse claims need to be dealt with in their own way. A return fraud claim needs to be verified, and it can sometimes involve police action. To prevent policy abuse, meanwhile, businesses should implement smarter policy and return rules.

What Return Fraud Actually Costs Retailers

• US return & claims fraud losses (2024): US$103 billion. Source - Appriss Retail + Deloitte, 2024 Consumer Returns in the Retail Industry Report

• Share of all US returns that are fraudulent: 9%. Source - NRF, 2025 Retail Returns Landscape

• Australian retailers hit by returns fraud/policy abuse in the past 12 months: 60%. Source -SecurityBrief Australia

• AU retailer loss per $100 of returned stock: ~US$10.40. Source - SecurityBrief Australia

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7 Common Types of Ecommerce Return Fraud and Return Policy Abuse (With Examples)

1. Wardrobing (Wear and Return)

Wardrobing involves a person buying a piece of clothing, wearing it once at an event for photos or a holiday, and returning it like it's new. Almost every fashion retailer has experienced it at some stage. A person might buy a dress on Thursday, wear it out on Saturday, and return it on Monday with tags tucked in. It's easy for anyone to carry out, but it can be a challenge to prove and prevent.

2. Bracketing Gone Too Far

In bracketing, a customer orders multiple sizes or colours of an item, intending to return them as normal. Things edge into return abuse territory when items are sent back worn, or a similar pattern of bracketing returns is apparent in every single order.

3. Empty Box and Missing-Item Returns

Some return fraudsters will simply return a box with nothing inside, or a completely worthless item to replace the item they've bought. These empty box returns are a common scam category used to exploit lenient refund policies. 65% of retailers report this kind of fraud, so it's important to keep on top of it by verifying package contents carefully to reduce the risk of box fraud.

4. Item Swaps and Counterfeit Returns

A classic returns scheme, item swaps and counterfeit returns involve sending back a cheaper, older, or even fake item in the genuine article's packaging. In a real-world example, this might involve a fraudster buying a designer bag, then returning a counterfeit version.

5. “Item Not Received” Claims (Friendly Fraud)

When someone falsely claims a delivered parcel never arrived and gets a chargeback or refund, that's a case of friendly fraud. In these friendly fraud claims, customers will keep the goods, and you'll lose out.

6. Receipt Fraud and Stolen-Goods Returns

Though more common in physical stores, returning shoplifted stock or using fake and found receipts on a return can occur in omnichannel returns too. Without due diligence, receipt and stolen goods fraud can be particularly hard for businesses to trace.

7. Professional Refund Services

The most elaborate form of returns and refund fraud, professional refund services run fake return scams at a large scale for a cut of the profits.

Is Return Fraud Illegal in Australia?

Return fraud is illegal in Australia. According to state and territory criminal law, deliberately deceiving a retailer for a refund constitutes obtaining financial advantage by deception. When it comes to retailers, you must remedy faulty goods under Australian consumer law. On the other hand, change of mind refund laws in Australia state that change of mind returns are optional. This is where fraudsters can take advantage, and they need to be accounted for in your return policies.

As a retailer, you've got a few different options to prevent fraudulent returns. These may include:

• set change-of-mind conditions (such as tags being left on, unworn items, and time limits)
• require proof of purchase
• refuse or restrict repeat returns policy abusers.

This is general information only. Individual circumstances may vary.

6 Warning Signs of Return Fraud

1. Customer's return rate is well above your average: If you notice that the same customer returns items far more frequently than most, it's a clear sign that they could be making fraudulent transactions.
2. High-value items returned repeatedly: When expensive items are returned a lot, it doesn't mean that those returns are genuine. Some customers might take advantage of returns policies to get out of paying a premium for products.
3. Missing tags or showing wear: If a dress comes back without its tags or shows signs that it's clearly been worn, then a customer may have simply bought it to use for a few days.
4. Frequent "item not received" claims: Item deliveries can go wrong and aren't ideal for customers or businesses. When a customer makes multiple claims of items not being received, however, it might be that they're keeping those items.
5. Mismatched products or serials coming back: When items come back with different serial numbers or mismatch the original, something might be up. Carefully check serial numbers and make sure that items match their descriptions before finalising returns.
6. Return spikes after sales and PayDay periods: When you look at your returns analytics and see spikes after sales and PayDay periods, customers may be taking advantage of returns policies. Enforcing return windows can help cut down on these instances, combined with other practices.

How to Prevent Return Fraud (Without Punishing Good Customers)

Return fraud prevention can be a tricky balancing act. The majority of Australian retailers prioritise customer experience over fraud prevention, so anything that addresses fraud must avoid hurting genuine shoppers. Some of the best tactics you can use include:

• Have a clear, visible returns policy: Businesses and good customers want to do the right thing by one another, and having a clear returns rules section on your website can address this. A returns policy should be written in straightforward language and easy to find on your website. This may involve clear headings or a prompt for customers to check out your returns policy before making purchases.
• Verify identity for high-risk/high-value return items: Customers returning expensive or high-risk items in good faith are unlikely to have verification issues. When someone is making false claims or is part of a wider returns fraud scheme, they're far less likely to verify their ID for fear of being exposed.
• Inspect items before restocking them: When a returned item comes in, make it a priority to ensure it's a genuine article and hasn't been used. Legitimate returns will have no issues, while fraudulent items can be identified and have appropriate actions taken.
• Tiered return rules linked to customer history: You can use your returns analytics to help shape your policy for customers. Incorporating customer loyalty, purchase-to-return ratios, and other factors into reward schemes (such as extended return windows and free return shipping) can help encourage positive returns behaviour and catch fraud.
• Track serial returners with data: With returns analytics, you can easily spot offenders who are frequent returners. Chances are, they're taking advantage of returns policies. When you do identify them, you can choose to restrict their purchases or ban them outright.

All of these elements of returns policies encourage good behaviour and help reduce return rates. By contrast, if you have strict return windows and refund fees for everyone, genuine customers can be turned off from purchasing anything from you at all.

How Refundid Helps You Manage Return Risk

Refundid's post-purchase operations software comes complete with a set of returns analytics and custom return rule capabilities, as well as instant returns and refund capabilities, and our Checkout Plus feature. With Checkout Plus, customers pay a small fee at checkout for guaranteed free return shipping. This gives them total reassurance while generating extra revenue for your brand.

Speed for shoppers doesn't mean you'll be exposed to a higher risk of fraud. Trusted by major brands such as Princess Polly, Culture Kings and DISSH, Refundid runs every request through a multi-signal risk engine before any money moves. By leveraging bank-grade identity verification, network-wide fraud intelligence, and dynamic user limits, we manage risk and fraud. This stops coordinated abuse before it hits your bottom line. Best of all, Refundid funds every instant refund upfront and handles the full recovery process for non-returns. This means your business carries zero financial exposure.

Backed by full SOC 2 compliance, Refundid proves that making returns effortless for customers doesn't have to compromise your security.

Book a demo with us today and discover how you can prevent return fraud.

Frequently Asked Questions

What is an example of return fraud?

A clear example of return fraud would be wardrobing: this is when a customer wears an item once, and returns it to you as new. Another example is someone returning an empty box and keeping the item it once contained.

Is return fraud illegal?

Yes, return fraud is illegal in Australia. It's seen as a form of theft by deception, according to Australian law. Persons guilty of return fraud can be banned from stores and can even face criminal proceedings in some cases.

What is considered return abuse?

Return abuse occurs when a customer exploits a returns policy in ways it wasn't designed for. This can include wardrobing (when someone wears an item and returns it like it's new) and extreme bracketing (ordering multiple sizes or colours of an item, intending to return many of them). Return abuse is different from fraud, as it relies on taking advantage of return policies instead of outright deception.

Can a store refuse a return in Australia?

Yes, stores can refuse any change-of-mind returns made by customers. However, returns for faulty goods cannot be refused and are perfectly legal, per Australian consumer law. In general, a full refund is required for faulty goods under Australian consumer law, while change-of-mind returns remain optional.

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