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Refund Fraud Schemes Promoted Online Are Costing Amazon and Other Retailers Billions 52

Posted by BeauHD from the business-is-booming dept.
Refund fraud groups are exploiting lenient refund policies, resulting in significant losses for retailers like Amazon and prompting civil lawsuits and arrests. The scheme has become so pervasive that groups now market their services on Reddit, TikTok and Telegram. CNBC reports: Fraud groups are taking advantage of retailers' lenient return policies, experts told CNBC, which often include unlimited free returns and sometimes even a preference that customers keep the items. It's ballooned into a massive problem for retailers, costing them more than $101 billion last year, according to a survey by the National Retail Federation and Appriss Retail. The figure includes multiple forms of fraud, such as sending back clothing after it's been worn, known as "wardrobing," and returning shoplifted merchandise, the survey said.

In December, Amazon filed a lawsuit against Page and 47 other people across the globe with alleged ties to Rekk, accusing them of conspiring to steal millions of dollars worth of products in a refund fraud operation. Amazon described these services as "illegitimate 'businesses'" that look to "exploit the refund process for their own financial gain to the detriment of honest consumers and retailers who must bear the brunt of increased costs, decreased inventory, and service disruption that impacts genuine customers." An Amazon spokesperson said the company is addressing the issue "head on" through specialized teams and machine learning tools that detect and prevent refund fraud.

Here's how it works: A shopper buys a product online and sends the order information to a group such as Rekk, which then poses as the customer in requesting a refund. Amazon refunds the money to the customer, who then pays the fraud group usually between 15% and 30% of the refund amount, often via PayPal or with bitcoin. That means the customer ends up buying the product for what amounts to a huge discount. The fraud group then pays the conspiring employee at the retailer, typically a certain amount for a batch of packages the employee scans as returned.
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Refund Fraud Schemes Promoted Online Are Costing Amazon and Other Retailers Billions More

Refund Fraud Schemes Promoted Online Are Costing Amazon and Other Retailers Billions

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  • The gov't tracks the hell out of individuals because we allegedly are too likely to be terrorists or some other boogiePerson. However, businesses come and go with seemingly zero scrutiny, ripping millions of people and biz's off, and spamming us up the wazoo.

    Any biz that does interstate commerce should be required to register, and verify the identity of the owners. Overseas companies lacking a local inspection branch have to post a bond.

    Wash. DC is focusing on the wrong "border".

    • Ebay (and the IRS) are drawing some lines on what constitutes a de-facto "business." (I'm unclear on whether sending you a 1099K means they also send it to the IRS.)

      If you've made at least $20,000 in gross sales and exceeded 200 transactions for goods* on eBay in 2023, you will receive a tax Form 1099-K for all your 2023 sales transactions.

      For tax year 2024, the IRS is planning a threshold of $5,000. Please visit our Form 1099-K FAQ pageÂfor more information.

      Hooray?

      • If you've made at least $20,000 in gross sales and exceeded 200 transactions for goods* on eBay in 2023, you will receive a tax Form 1099-K for all your 2023 sales transactions.

        If you live in a council flat... next to a river... but are not blind...

    • "verify the identity of the owners"? Is there anyone alive who doesn't know that Jeff Bezos owns Amazon?

  • It sounds like these retailers have a problem finding the frauds among the legitimate consumers. I can't think of any technological solutions, and there's no market for new products that businesses can sell each other.

    Let's just stop this whole "allowing returns" thing and cry our way to civil court?

    • Re:Looking for patterns? (Score:4, Insightful)

      by VeryFluffyBunny ( 5037285 ) on Thursday March 14, 2024 @06:09PM (#64316449)
      Obviously the people at Amazon making enough money to fund a pet rocket programme for its boss don't really care as long as the money keeps rolling in. It's probably mostly other people's losses too.

    • Amazon probably should throttle returns. If a customer returns too often or too much (price threshold) per year, then charge a return fee, perhaps graduated so that one's fee per item is dependent on return frequency.

      • Re: (Score:3)

        by cusco ( 717999 )

        Target started doing that a number of years ago, seemed to help until they found a lot of people's kids coming in to return something. Don't know what they did after that.

      • It's a tricky problem. The more you restrict returns, the less you're going to sell. Remember, the customer is buying something sight unseen and will only tolerate that risk because they know it can be returned if there's a problem. If that goes away, those sketchy Chinese products with the huge margins will be a much harder sell.

        • Re: (Score:1)

          by Tablizer ( 95088 )

          I do think the customer should have some skin in the game. The penalty for a "normal rate" of returns would be small or non-existent. And clothing probably should have a bigger allowance since sizing is everything.

      • Problem: Customers return merchandise too often for a refund.

        Solution: Retailer throttles returns and charges a return fee based on how many returns a customer requests.

        Workaround: Customers create a whole new account and identity each time they order.

        New problem: Retailer is unable to track customer preferences. Recommendations are meaningless. Product reviews become completely useless. A more horrible shopping experience for everyone.

    • There are many valid reasons for returns, taking amazon to court especially if you are in another country is not feasible. It would cost thousands just to take it to court.

      Although it may cost these company combined billions, it would cost them even more if people took them to court for every valid return they made.

      What would likely happen is of course most people wouldn't bother, and you would get scammers selling bad products on amazon and knowing most people wouldn't be bothered getting a refund.

      Billions

      • It depends on the country. Amazon operates subsidiary companies in other countries. They don't have to file an international lawsuit against them in the US. They can just file a suit in their own country against the local entity. Take for instance Canada. You could file in small claims court in your province without a lawyer against Amazon Canada for a trivial filing fee that you would include as damages. You likely wouldn't have to go that route though since if your credit card would likely side with
    • It sounds more like they have trouble keeping their own house in order and getting rid of the insiders facilitating this.

  • Amazon and others routinely don't ask you to return an item you "return" for a refund. They just tell you to keep it. They say it's too expensive to process returns.

    Well, maybe it's true that it's expensive to process returns. But people aren't dumb. If you don't ask for the returned item to be...returned, now they have something they can resell. Even the most ethical people might resort to this as a way to unload unwanted stuff. The less ethical will brazenly order stuff they don't want, "return" it, then

    • They must have the billions to spare, if they prefer letting it happen instead of tightening inventory control.

      I wonder if getting to play the victim doesn't fulfill some psychological need with them, in addition to the PR effects.

      • Or requiring everyone to return everything will end up costing them more to process than they are losing to organized refund companies .

    • Re: (Score:2)

      by cusco ( 717999 )

      The decision to require a return of the item or not is the decision of the vendor, not necessarily Amazon. Depending on how much fraud they've historically seen a lot of companies don't find it worthwhile to sort the wheat from the chaff.

      • I guarantee you that the one making the decision, is the one taking the financial hit.

        • Re: (Score:2)

          by cusco ( 717999 )

          Exactly. Two thirds of the goods sold on Amazon (the only platform that I know intimately) are sold by third parties. If an item needs to be returned Amazon will charge for that service, the same way they charge to sell it. If the physical item doesn't need to be handled and/or shipped the charge will be less. It's the vendor who is deciding whether it's worth the trouble to get the thing back.

    • It's not consistent and you don't know ahead of time which items they'll want back and which ones they won't. It wouldn't be too hard to ban you if you return everything to find out.

      • You're thinking in terms of some guy working the system. That's not how this happens. These guys set up myriads of shopping bots, each with a separate account. They don't care if the bot account gets shut down, they just create 10 more.

        • No you're missing the actual important part as to how it happens. They have insiders at the company facilitating it.
    • Amazon will ask for the thing back if it has any significant value. They package these returns up in huge pallet boxes and sell them off. Third-party companies then process the contents of these boxes and post each item on eBay or distribute at flea markets and junk stores.

      • Amazon will ask for the thing back if it has any significant value

        No, they don't seem to use the value of the item in deciding whether to ask for it back. I've personally "returned" the following items, and Amazon told me not to send them back:
        - An $80 bottle of perfume
        - A $200 patio table
        - A $150 shower chair

        The decision seems to be based on other factors besides price, as far as I can see.

  • Conspiring employee at the retailer? (Score:5, Insightful)

    by rsilvergun ( 571051 ) on Thursday March 14, 2024 @07:45PM (#64316635)
    The entire article makes it sound like this is just an exploit and how refunds work and then you get to the end and they admit that it only works because there is an employee at the retailer in on the scam.

    Also 101 billion a year is pure cop math. It's suspiciously close to several already discredited figures related to shoplifting..

    And one last thing remember nobody's going to cut their prices because this kind of theft stops. Why the hell would they they've already shown that you're willing to buy at those prices. The only other risk would be Amazon going out of business and I'm not going to hold my breath for that.

    Meanwhile there's tens of billions of dollars in wage theft going on but that's left to generally powerless regulators. You never see the cops pull up and arrest some schmuck that runs a crappy restaurant and hasn't been paying his employees. If you're damn lucky somebody from the labor department without a bad shows up and most of the time the employees who got their wages stolen just get a letter from the labor board telling them that they don't have the resources to go after the perp.

    Meanwhile all that money just kind of evaporates from your community

  • This isnt new (Score:3)

    by Slashythenkilly ( 7027842 ) on Thursday March 14, 2024 @09:47PM (#64316795)
    This is the company's fault for having such liberal return policies which they know people will exploit and know it will cost customers more down the road. Back in the day, anyone could pickup a Craftsman or LL Bean product from a garage sale, call the company and get a new whatever, with little to no questions asked. Just a couple of examples from hundreds of exploits from music to hardware with satisfaction guarantee products. I have no idea why Costco is still in business.
    • No it's their fault for not cracking down on bad apples in the company facilitating it. The scam doesn't work without insiders at the company taking bribes.

    • Costco doesn't make money from selling products, they make money from selling memberships.

    • Re: (Score:2)

      by ghoul ( 157158 )
      If you return too much to Costco they cancel your membership.

    • I have no idea why Costco is still in business.

      It just means you do not understand how the retail industry works. Coz they are absolutely killing it and have a rabid fan following, which is the envy of most other retailers

  • You are free to hire a lawyer at your own expense, likely to be told that you have no right to sue due to a clause buried in the fine print. And despite the fact the you received no consideration for giving up your rights, cannot sue anyway. If you somehow manage to win the suit, the whole thing never leaves CIVIL court. Everyone in the company will remain free, and they will prosper. Their freedom will never be at risk. They will not even have to admit guilt.

    If you defraud a company, however, the govern

  • Pay for enough labor to truly track what is going on or not, and you won't deal with that problem. Keep giving your employees terrible working conditions and they'll continue to "extract value as appropriate". Capitalism at its best.

  • Pays 0 tax but wants 100% of the benefits (Score:5, Insightful)

    by bubblyceiling ( 7940768 ) on Friday March 15, 2024 @02:07AM (#64317099)
    Amazon pays little to no tax but wants the taxpayer funded public agencies to help them solve a problem regarding their employees? This is a them problem and they should fox it rather than crying to the public.

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