Return Frauds: Reasons and How To Prevent [2025 Updates]

What is Return Frauds?

Return frauds happen when someone returns items that were never actually purchased, used or damaged, or—worse—were stolen. While it may seem like an isolated issue, the financial toll on retailers is massive. In 2023 alone, U.S. retailers lost an estimated $101 billion due to fraudulent returns and policy abuse – NRF and Appriss Retail Report.

This is more than just an inconvenience—it’s a multi-billion-dollar problem that forces businesses to tighten return policies. Unfortunately, these stricter rules don’t just affect fraudsters; they also make the shopping experience more frustrating for honest customers who rely on flexible return options.

And the issue is only getting worse. As fraud tactics evolve, retailers are caught in a difficult balancing act—cracking down on return frauds while still maintaining customer-friendly policies. The challenge now is finding effective ways to prevent fraud without discouraging genuine shoppers.

How Refund Fraud Works

For many businesses, refund policies are a necessity—they help keep customers happy and build trust. But for scammers? They’re an opportunity.

Over the years, return and refund fraud have cost retailers billions, forcing companies to crack down with stricter policies. Unfortunately, that often means genuine shoppers get caught in the middle. So, how do these scams actually work?

Some fraudsters go for the classic “I never got it” scam—they place an order, receive the item, and then claim it never arrived. Many companies, eager to provide good customer service, will issue a refund or send a replacement with little investigation. And just like that, the scammer walks away with free merchandise.

Others get a little more creative. Some will buy a legitimate product, swap it for a knockoff or a damaged item, and return it—scoring a refund while keeping the real deal. Then there’s the no-return refund loophole, where companies issue refunds for inexpensive items without requiring them back. A few well-placed complaints about “damaged” goods? Easy money.

And it’s not just individual scammers anymore. Organized fraud rings have taken things to another level, filing mass refund claims or even recruiting everyday shoppers to participate. These operations are slick, strategic, and a nightmare for businesses trying to fight back.

Retailers are in a tough spot—how do they stop fraud without making the return process frustrating for honest customers? It’s a balancing act, and as refund fraud evolves, companies have no choice but to keep up.

Are Return Frauds Illegal? What Are the Consequences?

Absolutely— return fraud is illegal . Depending on where it happens, it can be classified as theft, fraud, or even a felony if the amount stolen is significant. Retailers lose billions to return scams every year, and law enforcement is taking it more seriously than ever.

But how severe are the penalties? That depends on the scale of the fraud.

• Misdemeanor vs. Felony Charges – In many U.S. states, low-value return fraud is treated as a misdemeanor, meaning a fine or probation may be the worst-case scenario. But if a fraud ring is caught scamming retailers for high-value merchandise, it can lead to felony charges and serious jail time.
• Real Legal Consequences – Punishments vary, but they can include fines, restitution, probation, and in more extreme cases, prison sentences. In one major case, members of a refund fraud ring faced up to 20 years behind bars.
• State-Specific Laws – Some states have stricter return fraud laws than others. For example, using fake identities or counterfeit receipts to manipulate refunds could result in immediate legal action.

Despite these harsh penalties, return fraud remains a massive problem. The ease with which scammers exploit store policies makes it an ongoing challenge for retailers. While businesses are tightening security measures, finding a balance between customer-friendly returns and fraud prevention remains a difficult task.

Common Types of Refund Fraud

Refund fraud isn’t just a minor inconvenience—it’s costing businesses billions of dollars every year. What started as a few isolated scams has now evolved into a widespread issue, with fraudsters finding new ways to take advantage of store policies.

Retailers are constantly adapting to keep up, but the reality is that scammers are getting smarter, too. Here’s a look at some of the most common refund fraud tactics that retailers have to deal with every day.

Creating Fake Proof of Purchase

Imagine this: A scammer walks into a store, picks up a random item from the shelf, and confidently walks to the counter to return it. They flash a receipt—which looks completely legitimate—but it’s actually fake.

So, where do they get these fake receipts? Some print them at home, using templates found online. Others alter real receipts, changing the price or item details to inflate their refund amount. A few dig through trash bins, finding discarded receipts that match stolen items.

Here’s a real case: In early 2025, food delivery services faced major challenges from “refund fraud,” where customers falsely reported order problems to get refunds. This type of fraud caused businesses an estimated $103 billion loss in 2024, making up nearly half of all delivery app consumer fraud.

For retailers, this kind of fraud is a nightmare because the receipt looks real. That’s why many stores are now shifting to digital receipts and barcode tracking—making it harder for scammers to pull off.

Wardrobing: Buying, Wearing, and Returning

We’ve all been there—buying an outfit for a special occasion, only to realize we probably won’t wear it again. But some people take it a step further. They purchase expensive clothing, wear it once, and return it for a full refund.

While this scam is most common in the fashion industry, it also happens with electronics, tools, and even home decor. Some fraudsters even carefully remove tags and repack items perfectly, making them look unused. It’s a tough battle—because, unlike traditional fraud, wardrobing feels socially acceptable to some people.

Price Switching

Price switching occurs when a fraudster returns a cheaper or damaged item in place of a more expensive one, securing a refund for the higher-value product.

1. A customer buys a brand-new smartphone and later returns an older model in the same packaging.
2. Someone purchases high-end headphones but swaps them out for a defective pair before requesting a refund.

Because these items often look similar at a glance, the scam can go unnoticed, leaving businesses with unsellable merchandise.

Returning Stolen Merchandise

In this scheme, thieves shoplift items and then return them for cash or store credit, taking advantage of stores with lenient return policies.

1. A fraudster steals clothing from one store and returns it at another location, claiming they lost the receipt.
2. Someone grabs an unpaid item off a store shelf and walks directly to customer service to request a refund.

This type of fraud doesn’t just lead to direct financial losses—it also distorts inventory records, making it harder for businesses to track legitimate stock.

Employee Collusion

Sometimes, refund fraud isn’t committed by outsiders—it happens from within the store, with dishonest employees working with fraudsters to approve fake returns. ​In early 2025, a report by Appriss Retail and Deloitte highlighted that 39% of retailers identified employee fraud or collusion as a prevalent issue in fraudulent returns.

1. A cashier processes a refund for an item that was never actually purchased.
2. An employee overrides system alerts and approves fraudulent returns for accomplices.
3. Internal staff alters transaction records to cover up fraudulent refund activity.

Because employees understand store policies and security gaps, they can manipulate the system more effectively than external fraudsters.

Organized Fraud Rings

Unlike individual scams, organized fraud rings run coordinated refund scams on a large scale, using multiple people and strategies to avoid detection.

1. Some members use stolen credit cards to purchase expensive items, while others return them for cash or store credit.
2. Fraud rings share tactics, fake documents, and customer service scripts to manipulate refund policies across different stores.
3. Groups rotate identities and store locations, making it harder to track fraudulent activity.

These scams often involve multiple levels of coordination, with members specializing in purchasing, returning, and handling financial transactions to maximize their profits.

How To Prevent Refund Fraud From The Root?

Refund fraud isn’t just an occasional problem—it’s a growing challenge that’s costing businesses millions. Scammers are getting smarter, using loopholes in return policies to secure refunds they don’t deserve. If you’re running a marketplace, it’s important to have clear safeguards in place, ensuring you’re protecting your business without making things difficult for honest customers. So, how do you prevent refund fraud without overcomplicating your return process? Check out these suggestions!

Set Clear Return Policies That Leave No Room for Loopholes

One of the biggest mistakes businesses make is having vague return policies. Fraudsters love ambiguity because it gives them room to exploit weak spots.

1. Be specific about how long customers have to return an item.
2. Require proof of purchase —receipts, order numbers, or linked digital transactions.
3. Make it clear that any attempt at return fraud could result in account suspension.

Customers should know what’s expected, and scammers should know there are consequences.

💡How To Create Shopify Return Policy (+ Free Generate Tools)

Verify Every Return Before Approving a Refund

A weak verification process makes fraud easy. If customers aren’t required to prove their purchase, scammers will take full advantage of that.

1. Every return should be tied to an actual transaction.
2. High-value refunds should require ID verification.
3. If a customer has no proof of purchase, they shouldn’t be eligible for a refund.

This simple step alone eliminates a large percentage of fraudulent returns.

Watch for Suspicious Return Behavior

Sometimes, refund fraud isn’t obvious at first. A return here, another there—it might not seem like a big deal. But when you step back and look at patterns, things start to add up. If a customer keeps sending things back, especially expensive products, it might not just be bad luck.

Then there’s timing. Most people take a little time before deciding to return something. But if a buyer requests a refund almost immediately after purchasing, that’s different. Some fraudsters test policies, trying to see how easy it is to get their money back. They count on businesses not paying attention. But once you start tracking return trends, it’s easier to spot when something feels off.

Leverage AI & Data to Catch Fraud Before It Happens

Technology is one of the best defenses against return fraud. AI-powered fraud detection can instantly analyze refund patterns and flag suspicious transactions before they go through.

1. AI can detect refund requests that don’t match normal behavior.
2. Machine learning adapts to new scam tactics over time.
3. High-risk refunds can be flagged for manual review instead of being automatically approved.

With smart fraud detection in place, businesses can stop fraudulent refunds before they become a financial drain.

Use a Return Authorization System to Track Refunds

A return merchandise authorization (RMA) system helps keep track of every return from start to finish. Instead of letting customers send items back freely, they need to request an RMA number first. Without it, the return won’t be processed.

This extra step makes it harder for fraudsters to slip through unnoticed. Every return gets logged, so if someone tries to abuse the system, there’s a record of it. Over time, patterns become clearer, making it much easier to spot repeat offenders before they take advantage of refunds.

Train Your Staff to Spot Refund Scams

Technology can catch a lot, but employees are often the last line of defense when it comes to refund fraud. If they aren’t trained to recognize the warning signs, fraudsters will take advantage of that blind spot.

One of the biggest red flags is mismatched return items or altered receipts. A customer might return a high-end product, but if the serial number doesn’t match, that’s a problem. Similarly, some receipts look legitimate at a glance, but closer inspection reveals inconsistencies in dates, pricing, or store locations. Employees should be encouraged to trust their instincts and flag anything that seems off.

Repeat refund requests are another red flag. If a customer frequently asks for refunds, especially on expensive items, it’s worth checking their return history. Fraudsters often target multiple employees and locations, hoping that no one notices the pattern.

Scammers rely on staff not paying attentio n , so empowering employees with knowledge makes it much harder for fraud to go unnoticed. When a team is trained to identify suspicious returns and report inconsistencies, refund fraud becomes far more difficult to pull off.

Collaborate With Other Retailers to Fight Fraud at Scale

Refund fraud isn’t just one store’s problem—it’s a widespread issue. Many scammers hit multiple retailers, using different names and accounts to avoid detection.

Retailers can share fraud data to block repeat offenders. For instance, joining the Retail Industry Leaders Association’s (RILA) fraud-sharing network enables businesses to exchange anonymized data about fraud trends, scams, and organized crime rings targeting the industry.

Industry-wide databases help identify fraudulent return patterns. By participating in initiatives like RILA Asset Protection & Fraud Prevention, retailers gain valuable insights and resources to detect and prevent sophisticated fraud attempts.

Additionally, partnerships with law enforcement can significantly disrupt large-scale fraud rings, reducing overall losses.

When businesses collaborate through initiatives like these, scammers lose their advantage—making it much harder for them to keep gaming the system.

How Synctrack Returns & Exchanges App Helps Detect and Prevent Return Fraud

Return fraud is a growing problem, and Synctrack Returns & Exchanges app helps businesses stop it without complicating returns for real customers. With automated verification, fraud detection, and secure tracking, Synctrack makes refund fraud much harder to pull off.

• Synctrack funnels all returns through a secure portal, blocking fake claims and altered receipts before they get approved. Also, it prevents return fraud with policy features, such as restricting customers, order details (tags, value, delivery date), and product information (tags, collection, SKU).”
• Automated return fraud detection flags risky return requests , ensuring scammers don’t slip through.
• Customers upload a short video to verify item condition before returning, stopping false damage claims.
• Instead of cash, Synctrack lets businesses offer discount codes, store credit or gift cards, removing easy fraud incentives.
• Syncs with shipping providers to confirm items are actually sent back before processing refunds, preventing empty-box scams.
• Uses data analytics to spot repeat offenders and help businesses tighten refund policies when needed.

Also, Synctrack has earned a stellar 4.9-star rating from users and meets Shopify’s stringent Built for Shopify standards, highlighting its reliability and effectiveness. Its industry-leading performance has earned the app a feature spot on Shopify’s recommended customer support apps list.

With Synctrack , businesses can stop refund fraud while keeping returns simple and fair for real customers.

Conclusion

Refund fraud is a growing challenge, costing businesses money and tightening return policies for honest customers. Staying ahead means using clear policies, fraud detection tools, and strict verification processes to block scams before they happen. With solutions like Synctrack: Returns & Exchanges App, businesses can track returns, flag suspicious refunds, and stop fraud without complicating real customer returns. Adapting to new fraud tactics is key to keeping your marketplace secure, profitable, and trusted. Wish you luck!

Learn More: Ecommerce Returns Management: Best Practices + Tools To Reduce