Photo: Sherry’s Rose CottageA few years ago, a contracts student of mine left me almost speechless when he admitted in class that he had purchased a tie from J. Press with the intent of returning it after he wore it to deliver a mock oral argument to me (as a mock Connecticut Supreme Court Justice).
I was appalled in part because the case he was arguing was centrally about promissory fraud.? The law frowns upon people who make a promise that they don’t intend to perform.? If you commit promissory fraud, you can be tagged in many states with punitive damages, and you can be prosecuted for the crime of false promise.
Here he was, making a mock argument about promissory fraud, but in real life he was skating perilously close to committing it.? Then again, I’m fairly obsessed with the topic of promissory fraud.? I tend to see it lurking where others don’t.
This story of pre-meditated return is also the answer to my earlier puzzler. Consumers of both prom dresses and textbooks will similarly buy these items with the present intention of returning them for a full refund.? Why pay for a prom dress if you can wear it once and get all your money back? Stephen (comment number 73) wins the Freakonomics swag for his excellent guess to my puzzler. He wrote that “both of these items are being purchased for an event that is both finite in duration and singular in occurrence . . . [i]t is customarily or explicitly understood that the buyer will only be permitted to return the item for a refund before the usage occurs.” Bladt (comment number 13) deserves an honorary mention for guessing that the similarity between prom dresses and textbooks is that “[t]he School Board decides the areas that both must cover.”
Local college bookstores are not just losing sales to the Internet; they also have to contend with students who place an Internet book order and then buy the book from a brick-and-mortar store, all the while planning to return it when the cheaper Internet book arrives.
Buying an item with a present intention of returning it for a full refund does not fit squarely with the elements of promissory fraud.? But it is still a species of fraud.? And you shouldn’t do it.? It’s wrong.
Many commentators are so used to thinking of textbook and prom dress sellers as the rapacious bad guys that they had trouble thinking of wrongdoing happening on the buyer’s side of the transaction.
In his heart of hearts, my tie-buying student knew that J. Press wouldn’t have wanted to sell to him if he had disclosed his true intent.? That should be a big clue that what he was doing was wrong.
Justice Scalia might have committed a different kind of return fraud in 2004 when he bought a round-trip ticket to return from the infamous duck hunting trip with Vice President Cheney.?? Justice Scalia had flown down to Louisiana on the vice president’s plane.? To get back to Washington, he “purchased (because they were the least expensive) round-trip tickets” even though he only intended to fly one way.? I worry that Justice Scalia was buying his ticket under an implicitly false pretense.? As I wrote in a New York Times op-ed:
[I]t seems fair to assume that he bought what is known as a “throw-away ticket” – something the airlines expressly prohibit. US Airways, for example, does not allow the “use of round-trip excursion fares for one-way travel,” and reserves the right to refuse to board those who try to use them and to charge them the difference between the round-trip and one-way fare.
If Scalia knew of these provisions (and that’s a big if), he was committing a kind of promissory fraud.? The airline, like the bookstore, J. Press and the dress shop, wouldn’t have wanted to sell the ticket if it had known Scalia’s undisclosed intent.
There are times, however, when a consumer can legitimately withhold information about their future intentions.? If I work hard to learn that your rutabagas are worth more in the next city than you think, it is socially productive to allow me to withhold that information (and my intention to turn around and sell your rutabagas for a higher price).? Giving me a return for my effort gives me a reward for helping to move the market price toward a more efficient level.
But the premeditated return buyer is not providing a similar social value.? In fact, the buyer has good reasons to suspect that there aren’t joint gains of trade from this temporary transaction.? This means that the seller is going to lose more than the buyer gains from the contract.? (If there were joint gains, you could try negotiating a short-term rental of the book while you wait for the Internet copy.)
One of my super-sharp students, Richard Hernandez, suggested to me that the premeditated returner is doing society a favor by putting pressure on the bookstore to change its outmoded method of selling.? He thought the store should charge a restocking fee or an outright rental fee.
But there are sound business and pedagogical reasons why we might prefer a system without restocking fees.? We might prefer a world in which students can shop for courses.? It is not wrong to buy a book and then return for a full refund if you change your mind and decide you are not going to take the class.? This is not fraudulent.? And many bookstores wouldn’t mind taking the risk of return under this circumstance.? In fact, some college book stores only let you return for free if you can show that you’ve dropped the class.? But requiring this kind of paperwork is itself a hassle which might be seen as a cost of return fraud.
The full refund policy is a kind of course-shopping insurance.??? You can try out a course – including using the textbook – for a few classes without being stuck with the class’s textbooks or restocking fees.
From this perspective, the premeditated return scam is an extreme form of adverse selection because the buyer knows that she plans to put in an insurance claim when she returns her book.? The law can and should be structured to dampen and deter this form of opportunism.
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A return is a return and costs the same whether or not the consumer had intended or return it or not. We should seek to achieve a market where all costs are transparent in the prices charged the consumer. If restocking costs are minimal then no restocking fee should be charged. If they are significant then they should be charged. Anything else is part of a tactic by the seller to bundle a restocking service with the good at issue. Assuming that restocking does impart a cost to the seller, even without this so called “fraud”, buyers who do not return their good are subsidizing those that do. They are basically paying a form of mandatory insurance without the option to purchase the good in its naked form.
People who abuse these return policies are doing nothing less ethical than an investor who takes advantage of arbitrage opportunities. The more people abuse the policies the faster the policies are changed to reflect the true economic costs. The hidden subsidies and bundling will be forced into explicit prices that consumers can accept or reject at face value.
Frankly I am shocked by how lax many return policies are in cases of the buyer simply not wanting the goods. If a store is going to be completely blind to the gross inefficiency of people being able to just buy things then give them back for full refund, then the market should punish them by abusing the inefficiency until they decide to rectify the problem.
Why does Justice Scalia have to be aware of the provisions of the contract: http://en.wikipedia.org/wiki/Ignorantia_juris_non_excusat
“many commentators are so used to thinking of (college) textbook sellers as rapacious bad guys”- or, analagously, many commentators think twice 2 equals 4
I don’t think its fair to classify Prom Dresses with Textbooks. Prom dresses are usually original and have significant time put into making each one somewhat unique. Textbooks are expensive because students are held hostage by lazy professors, not because they have a high inherent value.
I do not understand why we need to moralize this. I personally will return anything that I am not happy with or that I decide I do not need. I view this as a service that a store provides in exchange for charging higher prices, cutting other services, or to attract customers that would not otherwise shop there. If the store finds that this trade-off is not profitable, they should change the policy or find some other measure to reduce the costs such as prohibiting an excessive number of returns from a single individual.
I’m not sure about this. Many businesses count on the fact that consumers will be too lazy to return the product. Heck, many infomercials practically dare you to purchase with the intent to return and rely on the natural laziness of its customers to bag the profit.
I’d imagine many clothing and book stores have a similar mentality and know this is a common behavior. You might first intend to buy the book at the college book store, hoping to find a cheaper price on the internet, but decide not to deal with the hassle of returning it when you find the price difference is only $5. In other words, there’s uncertainty about returning the item and works in the favor of the stores.
Throw-away tickets being ‘not allowed’ is simply a distortion of the market by the airlines; it does not fit into the category of obtaining a free rental, in effect, by subterfuge. The airline ends up with an empty seat which was paid for. There is no additional cost to them, perhaps besides the loss of a captive audience for their advertising. If the passenger doesn’t check in, then the loss does not even include making an announcement or holding the plane until the appropriate departure time.
The prom dress discussion reminded me of a similar exchange from my school years.
At my college, the students were required to buy their graduation gowns (which they would wear exactly once), but the faculty members , who would need (presumably an identical) one every year, had the option of renting.