Returns and Refund Abuse Is Turning Legitimate-Looking Customers Into a Margin Drain Through Disputes in 2026

Not every dispute begins with a stolen card. A growing share of merchant losses now comes from customers who are exactly who they claim to be, using the returns and refund process as a tool to keep the goods and get their money back. Wardrobing a dress and returning it worn, sending back an empty or brick-filled box, claiming an item never arrived when it did, or demanding a refund while quietly keeping the product — these are policy-abuse plays, and they hide inside the everyday flow of legitimate returns.

In 2026 this abuse has become more organised and more coached. Online communities share step-by-step methods for triggering refunds, scripts for pressuring customer-service agents, and knowledge of which retailers refund without requiring the item back. Where a claim reaches the card network as a dispute, the merchant faces the familiar chargeback machinery, but the underlying event is not a fraudster with a stolen card — it is a real customer exploiting the gap between generous return policies and the merchant's ability to prove what actually happened.

For the institution and the merchant the difficulty is that these transactions look impeccable. The cardholder is genuine, the original purchase authorised, the delivery legitimate, and the refund or dispute framed in the language of ordinary consumer rights. What separates abuse from a real problem is not the single transaction but the pattern across a customer's history — repeat "item not received" claims, serial returns of high-value goods, and refund requests that cluster in ways an honest shopper's rarely do.

Regulatory and Market Context

Card-scheme rules from Visa and Mastercard set the framework within which "item not received" and "not as described" disputes are fought, and recent scheme moves toward compelling-evidence standards give merchants clearer routes to contest claims where they can show a customer received and used what they ordered. At the same time, consumer-protection expectations rightly protect genuine buyers, which is why refund abuse is such a delicate problem: the same policies that reassure honest customers are the ones bad actors exploit.

The market context is a tension between conversion and control. Frictionless returns and instant refunds boost sales and loyalty, so merchants are reluctant to tighten them, yet every generous policy widens the surface for abuse. The emerging discipline is to price and manage returns risk at the customer level — distinguishing the loyal shopper who occasionally returns from the serial abuser — rather than treating every return as either wholly trusted or wholly suspect.

What the Data Is Showing

TrustSphere's engagement data shows refund and returns abuse producing a customer-history signature rather than a transaction-level one: repeat item-not-received claims across time, an unusually high value or frequency of returns, refunds requested without goods being sent back, and dispute language that mirrors coached scripts. The individual purchase looks clean; the abuse reveals itself in the accumulation of claims that a genuine customer's behaviour rarely matches.

The behavioural markers point to intent over time. A customer who repeatedly reports non-delivery to the same address, returns high-value items at a rate far above the norm, or escalates to a chargeback whenever a service request is declined presents a profile distinct from ordinary post-purchase friction. Because each event is individually defensible, the signal is longitudinal — the shape of the relationship — which is why abuse slips past controls that only examine one transaction at a time.

Implications for Financial Institutions

The practical implication is that returns and refund risk must be assessed at the customer and relationship level, not just the transaction. Merchants and their partners that maintain a view of claim history — non-delivery reports, return rates, refund-without-return events and dispute frequency — can distinguish policy abuse from genuine service issues and apply proportionate friction, such as requiring proof of return or verifying delivery, to the small cohort driving disproportionate loss without punishing honest customers.

There is an evidence dimension that determines outcomes when a claim becomes a chargeback. Firms that capture and retain delivery confirmation, device and account continuity, and prior order history are far better placed to use compelling-evidence provisions to contest abusive "not received" and "not as described" disputes. Pairing customer-level risk scoring with disciplined evidence capture lets institutions defend legitimate revenue while keeping the frictionless experience that genuine shoppers expect.

Conclusion

Returns and refund abuse is a fraud of the trusted customer, hiding inside policies designed to reassure honest buyers and surfacing only in the pattern of claims over time. The single transaction offers little to work with, but the customer's history does: repeat non-delivery reports, serial high-value returns, and refunds sought without goods coming back.

Institutions and merchants that respond well will score returns risk at the relationship level, apply targeted friction to the abusive minority, and capture the delivery and continuity evidence needed to contest disputes — protecting margin without taxing the loyal customers who make returns worthwhile.

Suggested Next Steps

• Assess returns and refund risk at the customer and relationship level, tracking non-delivery claims, return rates and refund-without-return events over time.

• Apply proportionate friction — proof of return, delivery verification — to the small cohort of serial abusers rather than to all customers.

• Capture and retain delivery confirmation, device and order-history evidence to contest abusive disputes under compelling-evidence provisions.

• Separate genuine service issues from coached policy abuse so honest shoppers keep the frictionless returns experience.

• 
  

Sources: Visa and Mastercard dispute and compelling-evidence rules on item-not-received and not-as-described claims; UK Finance reporting on first-party and friendly fraud; Merchant Risk Council commentary on returns and refund abuse; TrustSphere Risk Index — April 2026.

TrustSphere Risk Index — Vendor Spotlight: Forter

In TrustSphere's April 2026 Risk Index, Forter scored 64% in the Identity-Based Fraud & Policy-Abuse Prevention category, reflecting real strength in linking activity to a persistent identity across merchants, weighed against the challenge of judging intent when the customer is genuine and each claim is individually plausible.

Forter's core strength is an identity-based network that connects transactions, returns and disputes to a persistent view of the shopper across a broad merchant base, which is directly relevant to refund abuse, where the tell is a pattern of behaviour spread over time rather than any single event. Signals such as elevated return frequency, repeat non-delivery claims and cross-merchant abuse history can help distinguish a serial policy abuser from an honest customer having a bad delivery day.

The watch-item is that identity-network signals are strongest where coverage is deep and weaker for customers with little history, so they work best alongside merchant-side delivery evidence and clear return policies that define acceptable behaviour. Distinguishing abuse from a genuine grievance remains a judgement about intent, not just identity. Buyers should weigh how network intelligence integrates with their own evidence capture and dispute workflow, treating it as one layer of a returns-abuse defence rather than a standalone verdict on any single customer.

TrustSphere helps financial institutions design and deploy intelligent fraud and financial crime detection solutions. Visit www.trustsphere.ai