Is it possible to manage or reduce product returns by driving consumer behaviour, through behaviour-based pricing and by imposing a penalty for exercising cancellation rights?

UKFT Associate Member Fox Williams delves into the legal issues surrounding returns, as online retailers introduce new mechanisms to apply fees to customers with high return rates.

Consumer law implications

The relationship between a consumer and a trader is governed by the UK Consumer Rights Act 2015 (CRA) and the UK Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs).

The CCRs provide that consumers who have entered into contracts via distance communication (for example, online) have the right to cancel a contract with a retailer. Specifically, a consumer can cancel a contract for an online purchase at any time during the cancellation period, but this may be subject to the enhanced delivery costs, deductions for use, costs of the return and the costs of any services provided during the cancellation period.

The general period for cancelling a contract is 14 days (though certain companies may provide longer return periods than this). Upon cancellation, the retailer will need to reimburse any payment received from the consumer, which includes any charges for delivery (but not any enhanced delivery costs). Therefore, retailers are permitted to require consumers pay for the cost of their returns, provided they have told the consumer before the contract is concluded.

But what of any restocking fees? The CCRS provide that, ‘the trader must not impose any fee on the consumer in respect of the reimbursement’. So, while return costs are permitted to be deducted from the refund, it would appear that restocking fees are not. The only deductions that are permitted are where the value of the goods has been diminished as a result of handling by the consumer.

In addition, the CRA provides that where the consumer is returning faulty goods, the trader must bear the reasonable costs of the return and refrain from imposing any fee on the consumer in relation to the refund (apart from a potential deduction for use).

Data protection implications

What is the case is that a customer’s return rate, derived from their transaction history, constitutes personal data under the GDPR. It follows that the use of a return-rate tool to determine whether customers are subject to a return fee involves customer profiling and amounts to a data processing activity, meaning that any retailer deploying such a tool must ensure it complies with applicable data protection requirements.

In particular, the retailer must identify an appropriate lawful basis for processing customer data in this way. The lawful basis is likely either to be that the processing is necessary for the performance of a contract (that is, to administer and enforce the returns policy) or that it is necessary for the retailer’s legitimate interests, such as reducing excessive return behaviour. Where legitimate interests are relied upon, best practice is to carry out and document a legitimate interests assessment to ensure that the business’ interests are not overridden by the rights and freedoms of its customers.

Irrespective of lawful basis, it may also be prudent, depending on the nature, scale and impact of the processing, to carry out a data protection impact assessment to ensure appropriate measures are in place to address privacy risks. Retailers must ensure the accuracy of the data used, particularly where decisions such as charging a fee or, in more extreme cases, suspending or closing an account, are reliant on the data.

Retailers should also assess potential wider uses of return-rate data and their lawfulness, including whether the data could be repurposed for marketing, whether it might be shared with third parties, and whether attempts to aggregate and anonymise the data for these purposes have in fact been achieved.

Transparency is always important. Introducing new uses of customer data, and the applicable lawful grounds, should be clearly explained in updated privacy notices, including how the data is used and the consequences for customers.

A particular GDPR provision – Article 22 – may also apply. It restricts decisions based solely on automated processing that have legal or similarly significant effects. Businesses will need to determine if such decision-making falls within the scope of Article 22, meaning additional safeguards such as meaningful human intervention and the ability for customers to challenge decisions are required.

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This piece was written by Stephen Sidkin, partner, Arjun Majumdar, legal director, and Sophia Digby, trainee solicitor at Fox Williams LLP (www.fashionlaw.co.uk; www.foxwiliams.com).