Online Returns Fraud in Canada: Its Cost and Solutions

Returns fraud has gone professional. What used to be the occasional customer gaming a lenient policy is now an organized activity, coordinated in the open, and Canadian retailers are paying for it.

How the fraud operates

A Wall Street Journal investigation documented how fraudsters coordinate return schemes through platforms like Telegram, sharing tactics, comparing retailer policies, and even selling “refunding services” that execute the fraud on a customer’s behalf for a cut of the refund.

The core move is simple: extract a refund without actually returning the merchandise. Common variants include:

• The empty box. A return is filed and a package ships back containing nothing, or packing weight.
• The substitute. A counterfeit, a broken older unit, or an entirely different item goes in the box instead of the purchased product.
• The used return. Merchandise is bought, used, and returned as “unopened”: effectively a free rental.

Because these schemes are shared and refined in communities, a policy loophole discovered at one retailer gets exploited at scale across many.

What it costs

The numbers are large. Industry reporting put fraudulent returns in the United States at over $100 billion in 2023. In Canada, returns fraud increased by 22% between 2020 and 2022, according to the Retail Council of Canada. The pandemic-driven e-commerce boom accelerated the trend, since online purchases generate far more returns than in-store sales and give fraudsters more room to operate.

For an individual retailer, the losses stack up in layers: the refunded revenue, the missing or worthless merchandise, the processing cost of handling the fraudulent return, and the restocking of items that turn out to be unsellable.

How retailers can defend themselves

No single control stops returns fraud, but a layered approach catches most of it:

Deploy fraud detection on the returns flow

Fraud-detection software can flag suspicious patterns before a refund is issued: serial refunders, mismatched addresses, accounts with abnormal return rates, and claims that fit known scheme profiles.

Tighten return windows and verification

Shorter return windows and verification requirements (receipt or order matching, condition checks before refund release, ID checks on high-value returns) raise the cost of each fraud attempt without meaningfully burdening honest customers.

Connect the departments that each see one piece

Fraud is often visible only in combination: customer service sees the refund request, the warehouse sees the empty box, finance sees the chargeback. Retailers that connect these dots across departments catch schemes that each team would miss alone.

Watch how the tactics evolve

Fraud tactics are shared and iterated in online communities. Monitoring emerging schemes and updating policies before they’re exploited turns fraud defense from reactive to proactive.

Where returns processing fits in

The single most effective control is also the most basic: actually inspect what comes back, before the refund settles and before the unit re-enters inventory. Every return that gets received, serialized, and tested is a return that can’t be an empty box, a counterfeit, or a swapped unit.

That inspection layer is built into Microland’s reverse logistics programs: every returned unit is checked in against its RMA, authenticated, tested and screened, and tracked by serial number from dock to disposition. Retailers get a verified record of what actually came back, and fraud gets caught at the receiving bench instead of on the balance sheet. If returns fraud is showing up in your numbers, get in touch.