About Verify Return Authorization
1) What is The Retail Equation?
The Retail Equation (TRE), headquartered in Irvine, Calif., is the industry leader in retail transaction optimization solutions at the point-of-sale and point-of-return. The company has been in business since 1999 to help retailers prevent retail fraud/abuse while at the same time providing consumers with a streamlined return process. The company has a variety of technology solutions used by retailers nationwide. The most common in use today is Verify Return Authorization, which uses statistical modeling and analytics to detect fraudulent and abusive behavior when returns are processed at retailers’ return counter.
2) What is Verify Return Authorization?
TRE’s Verify Return Authorization System (the current version is called Verify-3™) is designed to identify the 1 percent of consumers whose behaviors mimic return fraud or abuse —a $14.3 billion to 18.4 billion per year problem in the United States.
As part of the Verify-3 service, TRE is contracted by retailers to gather their transaction information, store it securely, and analyze the data to develop and follow return policies for those retailers. TRE works as both application service provider and call center for each retailer.
3) How Does the System Work?
When a consumer wants to make a return, a retailer will scan the original sales transaction receipt and/or swipe the individual’s driver’s license or government-issued ID card to make an identification of the person and his/her unique return behavior. As customers return merchandise, the system compares variables such as return frequency, dollar amounts and/or time against a set of prescribed rules that form that particular retailer’s return policy.
Verify-3 enables retailers to rely on objective, verifiable data to determine whether a return is valid rather than relying on subjective observations and guesswork by sales clerks. This objectivity ensures that only those with highly suspect return-and-exchange behavior are affected. The vast majority — approximately 99 percent — of returns are accepted.
4) What are the Reasons Why a Consumer Would be Denied a Return?
While rules vary from retailer to retailer, Verify-3 is designed to identify fraudulent or abusive behavior. Those behaviors are not typical of 99 percent of consumers.
The 1 percent of consumers who get denied exhibit return behaviors that mimic fraud or abuse or exhibit habits that are inconsistent with the retailer’s return policy.
Refused returns generally fall into two categories. First, returns that break the retailer’s basic return policy, such as a return without a receipt, a return after the allowed return period, or multiple returns beyond the quantity of returns allowed by the retailer within a given period. Second, returns that make your overall return behavior indicate return fraud or abuse.
The refusal of a return does not mean a consumer’s return is fraudulent or abusive, only that the return history is often associated with such behavior.
5) What Information Does Verify Return Authorization Retrieve From Consumers’ ID?
Verify-3 captures several pieces of information from IDs to ensure accurate consumer identification, and the information captured varies from state to state. Typically, this includes identification number, name, address, date of birth and expiration date.
6) Where is Consumer Information Kept?
Data collected by Verify-3 is stored within a state-of-the art, secure data center located within the continental USA. To safeguard consumers’ personal information, TRE takes security measures including maintaining physical, electronic and procedural safeguards. Verify-3 provides far greater security than practices that are common in some retail stores, such as collecting consumer information on hardcopy return slips or saving consumer information on paper logs. Verify-3 complies with all local, state and federal laws regarding the security of the information; and TRE also conducts regular audits to validate that Verify-3 exceeds industry standards, including the Payment Card Industry (PCI).
7) What Factors Does Verify Return Authorization Use to Determine if a Retailer Should Accept a Consumer’s Return?
This varies from retailer to retailer. The factors that Verify-3 may use for a given retailer include:
- The frequency of returns
- Return dollar amounts
- Whether the return is receipted or non-receipted
- Purchase history
Verify-3 does NOT use any of the following factors in authorizing returns:
- Physical characteristics
- Marital status
8) How Can Consumers Find Out if the Verify Return Authorization System has Information on Them?
Consumers can contact TRE by sending an e-mail to ReturnActivityReport@TheRetailEquation.com or a letter to The Retail Equation, P.O. Box 51373, Irvine, CA 92619-1373. Requests should include the consumer’s name and a phone number where he/she can be contacted. When TRE calls, the company will ask for the consumer’s driver’s license number and state, to enable a database search. TRE representatives prefer to call consumers to avoid sending personal information via e-mail or mail.
9) What is a Return Activity Report?
A Return Activity Report is a history of consumer return transactions posted in stores using Verify-3. The report lists return activity information including the stores the consumer has returned to and, for each return, the date and time, whether it was receipted or non-receipted, and the dollar amount.
Note that while a Return Activity Report shows all of a consumer’s return transactions at participating retailers, Verify-3 uses only the transactions for the retailer where a consumer is making a return to authorize the return.
10) How does TRE Ensure Data Quality and Address Disputes?
TRE periodically evaluates its data collection efforts to ensure that the information we collect is accurate. We update our policies and procedures as needed to ensure data quality.
TRE offers consumers the ability to dispute their Return Activity Report and facilitate a dialogue between the consumer and retailer to reach a proper resolution. With this process, TRE acts as an advocate, on behalf of the consumer, to ensure the consumer’s request to the retailer is met and resolved within a timely manner, typically within 30 days.
If a consumer identifies any inaccuracy in his or her information, or if a consumer needs to change information in TRE’s files, the consumer should notify TRE in writing at The Retail Equation, P.O. Box 51373, Irvine, CA 92619-1373 so that we may investigate and update our records as needed. Please reference the transaction numbers for any returns that you wish to dispute.
Background on Return Fraud and Abuse
1) How is Return Fraud and Abuse Hurting the Economy?
Return fraud and abuse harms not only retailers, but consumers and workers as well. The retail industry lost $14.3 billion to 18.4 billion to return fraud in 2011 alone. Retailers must offset the costs of this fraud and abuse by increasing prices to consumers and by reducing costs—which too often means a loss of jobs. At an average retail salary of $27,000 per year, return fraud and abuse is costing retailers and workers between 524,000 and 673,000 jobs.
Additionally, because of the significant losses caused by return fraud and abuse, states are losing a total of $870 million to $1.1 billion in state sales tax revenues (and even more at the local level), at a time when state budgets need it the most. See the state map of lost sales tax revenues on pages 6-7 of the 2011 Consumer Returns in the Retail Industry report.
2) What are Some Examples of the Return Fraud and Abuse Problems?
- Wardrobing or renting: Buying merchandise for short-term use with intent to return, such as video cameras for weddings, big-screen TVs for a Super Bowl game or a dress for a special occasion
- Employee fraud: Returning stolen goods assisted by employees for full retail price
- Receipt fraud: Using falsified, stolen, or reused receipts to return merchandise
- Returning stolen merchandise: Shoplifting with intent to return for full retail price
- Price switching: Putting lower priced tags on merchandise with intent to return for full retail price
- Price arbitrage: Buying differently priced, similar-looking items and returning the cheaper one as the expensive item
3) What Constitutes Return Fraud? What Constitutes Return Abuse?
In general, return fraud involves stealing or forgery. For example, a person might return stolen merchandise to make money; steal or falsify receipts to enable excessive returns; or use merchandise returns to convert bad checks to cash.
Return abuse, sometimes called “friendly fraud,” occurs when a person purchases merchandise without intending to keep it. An example of abuse is “renting” (also known as “wardrobing” when it involves clothing). Renting occurs when someone purchases merchandise without intending to keep it, uses the item, and then returns it.
4) What is a “returnaholic”?
A returnaholic is someone who buys and returns goods excessively either with fraudulent intent, dishonest intent, or simply due to an inability to control his/her shopping behavior. There are three basic types of returnaholics: 1) those whose objective is to commit fraud through deceiving a retailer into giving a cash refund or credit which is illegal; 2) those who may not be breaking the law, but who abuse retailers’ return policies and/or buy merchandise knowing they will return it later; and 3) those who are sometimes referred to as “bulimic shoppers” who feel compelled to buy things to get a high or fill a void of sorts and then feel sick afterwards and have to “purge” their purchases through returning them.
5) Is Receipted Fraud a Big Problem?
Yes, approximately 80 percent of all returns are receipted. It is estimated that more than half of the return fraud transactions involve some sort of fraudulent receipt – either counterfeit receipts generated by computers or “found” or re-used receipts. As a practical matter, it is often very difficult for a retailer to tell at the time of the return whether a receipt is valid or fraudulent.
Fraudulent receipts are a clear example of how fraudsters and organized rings of criminals will go to great lengths to take unfair advantage of retailers’ liberal return policies to gain criminal advantage.
Benefits of Verify Return Authorization
1) Why is the Verify Return Authorization Technology Important?
The retail industry is currently experiencing a significant fraud and abuse problem that is growing in both size and sophistication. Retailers are losing more than $14.3 billion to 18.4 billion per year due to return fraud and abuse.
Verify-3 is designed to identify the 1 percent of consumers whose behaviors mimic return fraud or abuse. Without this system, retailers are forced to create stricter policies such as “no receipt, no return,” or raise prices for consumers to offset the losses incurred from fraudulent returns. With TRE’s technology, retailers can extend more liberal return policies while still taking a proactive approach to curbing the problem.
2) Why is the System Important for Consumers?
Verify-3 offers tremendous value to customers. Only 1 percent of all consumers are responsible for fraudulent or abusive return habits. Rather than forcing retailers to impose stricter return policies such as “no receipt, no return” or 14-day limits on returns, the system actually allows retailers to offer the other 99 percent of consumers more lenient and flexible return policies.
The system also benefits consumers because electronically capturing information speeds returns, ensures accurate data capture, provides for more secure data storage, enables consistent and objective enforcement of return policies, and lowers costs for consumers.
This means that wait times are shorter for consumers because store associates manually enter less information. The data is more accurate because it exactly matches the information on the consumer’s ID, and it is more secure than information recorded on paper, a process used by many retailers today who do not have Verify-3. Return policies are more consistent because an automated system applies the same policies to all consumers in a fair and balanced process.
Additionally, the Verify-3 services include a call center that is available for all consumers to address any concerns following a transaction, such as the return experience or any questions about a denial or warning. Furthermore, similar to a credit bureau, call center employees can provide consumers with a copy of their Return Activity Report, which contains the information that was used to make the authorization decision.
Finally, by preventing return fraud and abuse, an automated system helps lower costs for retailers and therefore, helps keep prices down for all consumers.
3) Why is the System Important for Retailers?
Verify-3 optimizes net sales, and reduces the return rate and shrink.
A certain percentage of returned merchandise must be discounted or discarded in order to sell it. For example, out-of-season clothing may go directly to the sale rack after being returned, while returned lingerie apparel may be discarded for health reasons. The retailer also must spend time restocking, which is time an associate could be spending with a consumer on a new sale.
By reducing fraud and abuse, retailers will also be able to reduce internal employee theft and shoplifting.
4) How Does Verify Return Authorization Help Prevent ID Theft?
Verify-3 provides an electronic alternative to manually recording a consumer’s drivers’ license number, thus providing stronger protection against identity theft than paper-based systems used by many retailers. In a paper-based system, consumer’s sensitive information is recorded by the clerk and left at the counter or in the control of store-level associates. With Verify-3, no information is ever stored in the store or on the terminal and the store level associates have no access to the data. Once the information is scanned, it is encrypted and sent to TRE’s state-of-the-art data center.
5) How Does Verify Return Authorization Help Prevent Discrimination?
Verify-3’s decision engine is objective and based solely on the consumer’s transactions and no other factors and/or human-based decisions. Through the use complex mathematical algorithms, Verify-3 is able to specifically identify and warn or deny only those consumers―approximately 1 percent of all returners―that are exhibiting patterns of fraudulent or abusive behavior.
Relationship Between Verify Return Authorization and Retailers
1) How does a Consumer Know if a Store has Contracted to Utilize Verify Return Authorization?
Retailers that use the Verify-3 service post signs to inform consumers of their use of the Verify-3 technology.
2) Does the Verify Return Authorization System Share Consumer Data Among Retailers?
No. Although sharing consumer data among retailers is well-established for practices such as check and charge authorization, the Verify-3 system does not share consumer data among retailers when authorizing return transactions.
3) Does TRE Set Retailer Return Policies?
TRE does not set the return policies for retailers. The company gathers and supplies the data that retailers use to make return authorization decisions, and to help them determine their optimal return policies.
4) How Can a Consumer Learn More About a Retailer’s Return Policy?
Retailers post their return policies in their stores. Some retailers also post their return policies on their websites or receipts.
5) Are Retailers Required to Disclose What They Consider Return Fraud and Abuse?
TRE works with each of our retail customers to ensure they have disclosure practices that comply with all state and other laws. This includes emphasizing return policy disclosure signage in a conspicuous place, visible to the public in the premises where the goods are sold, and by printing the return policy on the sales receipt.
Verify-3’s technology uses a complex set of mathematical algorithms to analyze return patterns and flag for retailers those returns considered suspicious. While signage varies from retailer to retailer, someone who is denied usually returns in a manner which exceeds 99 percent of typical shoppers. In addition, retailers can use Verify-3 to issue warnings to consumers before issuing a return denial; therefore, warnings can be a visible indicator of the rules in action well before a denial might occur.
To reduce the likelihood of being warned or denied on a return, consumers should consider the factors listed in the question above and reduce their frequency of returns, reduce their return dollar amounts, return within the store’s return time limits, and retain their original sales transaction receipts.
Other Consumer Questions
1) Isn’t Making a Return or Exchange a Right to Which Consumers are Entitled?
No, returning merchandise is a privilege granted by each retailer to its customers, and it differs according to each retailer’s approach to the market. Depending on state law, retailers are required to post their return policies, but they are not required to accept merchandise returns.
2) Will Return Activity Affect a Consumer’s Credit Report?
No, TRE does not share data with any credit reporting agencies or similar organizations like potential creditors, employers, insurers, landlords and government agencies.
3) If a Consumer’s Return is Denied, Does That Mean He or She is Committing Fraud?
The vast majority of consumers are neither fraudulent nor abusive. Being denied a return does not imply that the consumer has committed fraud or is habitually abusive; it merely means that the consumer has requested what that specific retailer considers excessive returns.
4) If a Consumer’s Return is Denied, Does that Mean He/She is Listed as Always Denied From Making Future Returns?
Verify-3 does not “blacklist” consumers in the sense that they are prohibited from ever making returns at all retailers. The system may prevent a consumer from returning for a period of time at a particular retailer, but if that consumer reduces his or her return activity the system then allows the consumer to make returns at that retailer.
Some retailers have lists of consumers who have abused the retailer’s return policies or committed fraud. If a retailer does not wish to do business with a consumer that the retailer has identified as abusive or fraudulent, TRE will help the retailer, at its request, to implement its policy by denying returns by that consumer at that retailer.