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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I wonder whether Alex in Chicago works in the fashion industry. Most prom dresses aren’t original: most are bought from a place like David’s Bridal or a big department store at the local shopping mall for less than US$ 200.
In fact, at most proms, you can find a couple of girls who are mortified to discover that they’re wearing exactly the same polyester dress, from the same store.
I’m not sure that the tie and the return ticket are analagous from an ethical standpoint. Not using something you paid for is the exact opposite of using something and not paying for it. The airline objects because there’s an empty seat on their plane that could have a passenger in it. But if you bought season tickets to a football game knowing that you would not be able to attend one game, is that fraud?
Scalia’s behavior was likely only taking advantage of the pricing disparity between (generally high-priced) one-way tickets and (usually more economical) round-trip tickets. It seems more unethical to charge customers in this manner just because it suits your bottom line than it does for a customer to attempt an end-around. You paid for that ticket, skipping the return trip is no more unethical than skipping the whole trip.
It makes sense that it is wrong to buy something with the intent of returning it (as if unused) after use. There is a grey area, however: what if one tries it, does not make any material (observable) damage or wear so that it remains salable, but finds it unsuitable for one’s purpose? Unless explicitly forbidden by a plainly stated “All sales are final” policy, that is permitted.
One certainly has the right to discard a portion of one’s purchase. If I keep food too long and it goes bad, or if a restaurant serving exceeds my appetite, am I required to consume it anyway? This applies to the return portion of a round-trip ticket. A good customer will cancel the return reservation so that the airline can sell it to someone else.
The other side to the OP’s argument as to textbooks is that by not making the course reading lists available until it is too late to buy them anywhere other than the official university bookstore, the professors are complicit in the university’s anticompetitive behavior and the students are simply reintroducing competition into the system by engaging in economically rational self-help.
Ignoring for a moment the absolutist moral proclamation of “wrong,” I would be interested to know how you would evaluate this example. In advance of a camping trip, I was looking for an inflatable mattress. I had already bought one that was extremely uncomfortable and had returned it. I saw one at Target that was really cheap. I knew there was a very good chance it would also be unacceptably inferior, but for the price it was worth giving it a shot. I could have paid $200 for a mattress that would have had, say, a 90% chance of being satisfactory. Instead, I paid $40 for a mattress that I estimated I would return with about 75% confidence. Not the 100% confidence that your student exhibited, but had Target known that I was reasonably sure I was going to return this mattress, they probably would not have sold it to me. Where do you draw the line?
This is all well and good philosophically, but what about the fraud and collusion committed between the textbook companies, colleges and campus bookstores which require students to buy $150+ textbooks which have less original and quality content than a random Wikipedia article? And let’s not forget a new edition each year with slightly changed page numbers, which only devalue the used market without providing any benefit to the student.
A student can choose not to go to the prom, but a student can’t choose not to buy a textbook. Returning books practically (or in reality) unread when a lower price is found elsewhere is a) normal in capitalistic commerce and b) the only defense a student has against market forces designed specifically to be detrimental to the student.
Return rights are an importnat term of the sale contract. I prefer buying consumer electronics at Costco, where they tend to be competitive, but often a few percentage points more expensive (tax excluded) than internet discounters ENTIRELY because of their robust return terms.
Clearly Costco views it the same way, as they changed the policy from “lifetime” return to “90 days without cause” on TVs and computers, which lose a good bit of value in a short amount of time (often less than 90 days).
Take a look at Nordstrom. Their return policy and general willingness to work with customers’ has a strong correlation to their success in my opinion. Creating an efficiency and customer-friendly return policy can be very good for business. Will people abuse it, of course; everything will be abused, but in many cases the value of loyal customers far out ways the costs of a fewer abusers.