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Refund Fraud

TL;DR
  • Refund fraud = Exploiting return/refund policies to get money or goods without legitimate cause
  • Common schemes: wardrobing, empty box returns, "did not receive" claims, double-dipping (refund + chargeback)
  • "Refund-as-a-service" criminal services now openly advertised
  • Detect via: high refund rate (>15%), weight mismatches, serial number changes
  • Related to friendly fraud and chargeback management

Exploiting return and refund policies for financial gain.

Definition​

Refund fraud involves manipulating return processes, exploiting refund policies, or making fraudulent claims to obtain money or goods without legitimate cause.

Common Schemes​

Return Fraud Variants​

TypeDescription
WardrobingUse item, return with tags still attached
Receipt fraudUse found/stolen receipts to return shoplifted goods
Price switchingSwap tags, return at higher price
Empty boxReturn empty box or box with wrong item
Cross-retailerBuy at Store A, return at Store B

Refund Fraud Variants​

TypeDescription
Double dippingGet refund from merchant AND chargeback
Did Not Receive (DNR)Claim package not delivered (see 13.1 reason code)
Item Not As Described (INAD)Exaggerate issues for refund (see 13.3 reason code)
Partial returnReturn only part of multi-item order
Refund-as-a-serviceCriminal services that process fraudulent refunds

"Refund-as-a-Service" Economy​

Growing Threat

Professional refund fraud services offer:

  • Guaranteed refunds for a percentage fee (15-40%)
  • Social engineering scripts
  • Fake tracking numbers
  • Claim processing for consumers

These services are openly advertised on social media and forums.

Detection Signals​

Customer-Level​

SignalRisk Level
High refund rate (>15% of orders)🔴 High
Multiple "not received" claims🔴 High
Refund requested immediately after delivery⚠️ Medium
Returns always at max allowed timeframe⚠️ Medium
Returns of high-theft items (electronics, designer)⚠️ Medium

Transaction-Level​

SignalRisk Level
Weight difference (return vs. original)🔴 High
Serial number mismatch🔴 High
Item condition inconsistent with claim⚠️ Medium
Photo evidence doesn't match claim🔴 High

Prevention Strategies​

Policy Design​

  1. Receipt requirements – Original payment method for refund
  2. Restocking fees – Reduce wardrobing incentive
  3. Time limits – Shorter return windows
  4. Condition requirements – Clear usage definitions
  5. Refund method – Original payment method only

Operational Controls​

  1. Verify delivery – Photo, signature, GPS
  2. Weight checking – Compare return weight
  3. Serial number tracking – Match on return
  4. Abuse tracking – Flag serial abusers
  5. Refund velocity limits – Caps per customer per period

Technology​

  1. Return probability scoring – ML on return likelihood
  2. Customer abuse scoring – Lifetime return behavior
  3. Network analysis – Link related accounts (via device fingerprinting)

Next Steps​

Detecting refund abuse?

  1. Check customer-level signals - High refund rates
  2. Verify transaction-level signals - Weight, serial mismatches
  3. Set up velocity limits - Caps per customer

Preventing refund fraud?

  1. Review policy design - Tighten return policies
  2. Implement operational controls - Weight checking, serial tracking
  3. Track abuse history - Flag serial abusers

Fighting refund-related chargebacks?

  1. Review compelling evidence - What wins
  2. Check refund strategy - When to refund vs fight
  3. Set up alerts - Pre-dispute resolution