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If your business provides goods or services to consumers, you have to provide your customers with a remedy if those goods or services fall short. This is because if you fail to meet your consumer law obligations, the customer is the one that loses out when the product they bought is not up to standard. However, what does that remedy have to be? Many businesses will offer a credit note for future purchases as a response to customer returns. However, you can only do this in certain situations. This article will explain:

  • your consumer obligations in providing remedies for customer issues; and
  • whether providing a credit note instead of a different remedy meets those obligations.

When Do I Have to Give a Customer a Remedy?

When you sell goods that a person would buy for personal or household use (known as ‘consumer products’), you make certain implied promises when you sell those products. These are ‘consumer guarantees’, and your business has to uphold them. These are guarantees are that your products are:

  • appropriate for their intended purpose;
  • of acceptable quality;
  • safe;
  • the same as any demonstrations or descriptions you give;
  • delivered on time and in good condition;
  • priced reasonably where you have not determined a price already; and
  • sold legally.

If a customer complains to you about a faulty product, you have broken one of these guarantees, and you have to provide a remedy of some description.

For example, say you sell hiking boots designed to withstand heavy rain and mud to a customer. If they fall apart after their first usage, they are faulty and not fit for purpose, so you have to give that customer a remedy.

When Do I Not Have to Give a Remedy?

You always have to give a customer a remedy if a customer comes back to you with a faulty product. But, there are other instances where customers cannot demand a remedy from you. These are when a customer:

  • changes their mind, or buys the wrong size;
  • damages the product themselves, whether by accident or on purpose;
  • does not follow advice about product usage (such as storage instructions);
  • goes to another party for product repair before coming to you; or
  • goes against your advice regarding the product (for example, asking you to use cheaper material for furniture they commissioned).

You can design your own store policies saying that you provide remedies for these situations if that suits your business. This can increase customer satisfaction and make your business more desirable for customers. However, you have to balance that with the financial losses this may bring.

For example, you may allow customers to exchange clothing if they bought the wrong size.

What Kind of Remedies Can I Give?

If you break one of your consumer guarantees, the law requires that you provide a remedy to your customers in the form of a:

  • repair;
  • replacement; or
  • refund.

While you do not have to provide those remedies in every instance when a customer wants to return a product, you do when the issue comes under your consumer law obligations. 

If the problem is serious or substantial, as a faulty product would be, the customer gets to choose what kind of remedy they want. A problem is serious when:

  • the product is significantly different from you how described it or any demonstrations you gave;
  • the product is not fit for its intended purpose, and you cannot easily make it fit for that purpose;
  • a reasonable customer would not have gone through with the transaction, had they known about the fault when purchasing; or
  • the product is unsafe.

These are all major faults, so the customer is entitled to the remedy they want. So if a customer wants a cash refund, you have to give them that refund.

Credit Notes as a Remedy

If a customer comes to you with a faulty product that is not easily fixable, this counts as breaking one of your consumer guarantees and is a serious problem. You cannot offer a credit note or store credit for a faulty product, because that does not replace one of the remedies that the law says you have to give. Your internal shop policies cannot override consumer rights.

However, you can use credit notes when the law does not require you to give remedies.

For example, in the situation where a customer buys a t-shirt in the wrong size, you could give them a credit note for the value of the t-shirt that gives them an incentive to make that purchase.

Using credit notes in this way can help with customer retention and generate customer goodwill. 

Key Takeaways

If a customer comes to your business wanting to return a confirmed faulty product, you have to give them a remedy. In this instance, you cannot offer a credit note instead of the usual remedies. However, you can offer credit notes as remedies when customers return products for reasons outside of this (for example, if they change their mind). If you would like more information or guidance around credit notes and your consumer law obligations, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a credit note?

A credit note is an item that represents credit at your store. Customers can purchase products using that credit note up to its specified value.

What is a remedy?

A remedy is what you have to provide if you break one of your consumer guarantees. You give a remedy to make up for your business’ mistake. It would usually be a repair, refund, or replacement.

Can I offer a credit note instead of a refund?

You can only offer credit notes in situations where customers are not legally entitled to a refund. This would include when customers change their mind or order the wrong size.

Can I offer a credit note when a customer returns a faulty product?

You cannot offer a credit note when a customer returns a faulty product, because they are entitled to a remedy in that situation. You have to offer either a replacement, refund, or repair.

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