(MENAFN- Live Mint)

The government will examine if cash-on-delivery charges imposed by online retailers are aimed at nudging consumers to pay upfront, and why refunds are delayed or blocked if prepaid orders are cancelled, said two people aware of the matter.

The ministry of consumer affairs is reviewing all such complaints and is expected to hold consultations with e-commerce companies, consumer rights organizations, and industry bodies to arrive at a practical solution that balances operational needs with consumer protection, the people said on condition of anonymity since details are not public yet.

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They didn't disclose the number of such complaints received, but encouraged customers to raise their concerns through the National Consumer Helpline (NCH).

Online shoppers are reportedly opting for advance payments to avoid additional levy on cash on delivery (CoD), according to the ministry. Amazon charges ₹7-10, while Flipkart and FirstCry charge ₹10 additionally for payments made after an order is delivered. This is in addition to platform fees, which also vary across online retailers.

Nearly 65% of consumers opted for cash on delivery in their last online purchase, with fashion and clothing products showing the highest reliance on CoD, according to a February 2024 report of a survey covering 35,000 consumers across 25 states conducted by the Indian Institute of Management–Ahmedabad . The preference to pay post delivery was particularly strong among low-income households with an annual income of less than ₹3.6 lakh.

Consumer protection against online malpractices is critical as India's e-commerce market-currently pegged at about $160 billion–is projected to surge to $345 billion by FY30, according to a May report by India Brand Equity Foundation (IBEF). With 881 million internet users, India is expected to become the world's third-largest online retail market by 2030.

When a consumer places an order opting for CoD, the Flipkart message states: “ Due to handling costs, a nominal fee of ₹10 will be charged for orders placed using this (COD) option. Avoid this fee by paying online." In the case of Amazon, it says:“A convenience fee of ₹10 will apply."

Queries sent to the ministry of consumer affairs, Amazon, Flipkart and FirstCry remained until press time.

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CoD fee waiver possible remedy

The IIM-A survey report released in February 2024 cited trust issues as a key factor behind consumer preference for COD. Marketplaces collect money from customers on behalf of sellers under COD.

“The issue is that platforms are charging a fee for opting cash on delivery and pushing consumers to pay in advance, which goes against the spirit of consumer rights. The department is in the process of reviewing such cases," said one of the two people cited above.

“We are examining the issue from the consumer perspective, as their money is blocked, and there is concern over who is holding the funds and how those funds are used by the online platforms during this period," said the first person.

In case of prepaid orders,“consumers have no remedy if their orders are not delivered within the expected time of arrival (ETA) and are left with no option but to wait", said the person.

The second person quoted earlier said the ministry is exploring several measures to address the issue.“These include directing e-commerce companies to improve their supply chains to meet the estimated delivery timelines (ETAs), waiving COD charges, or compensating customers if products are not delivered on time despite advance payment."

In addition, both persons indicated that the ministry may penalise platforms found engaging in unethical trade practices under the Consumer Protection Act 2019, including unfair charges or failure to adhere to promised delivery schedules.

Where does the interest on refunds go?

Industry representatives said the COD fee, typically minimal, was introduced to curb frequent order cancellations, which disrupt inventory and logistics planning.

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However, Consumer Voice, a consumer protection group, counters that the charges and delivery delays are causing concern, with buyers feeling cheated as their money stays blocked while the platforms earn interest on it

“Extra fees and blocked payments without clear reasons can seriously damage consumer trust, especially when online shopping is becoming such a big part of daily life," said Ashim Sanyal, chief executive officer of Consumer Voice.

The ministry has the option of reviewing such cases under different provisions.

“The complaints related to COD fees, blocked payments, or delayed deliveries can be examined under Section 2(47) on unfair trade practices and Section 2(11) on deficiency in service," said Manish K. Shubhay, partner at The Precept-Law Offices.“The matter can also fall under the purview of the Consumer Protection (E-Commerce) Rules, 2020, which require platforms to ensure transparent pricing, fair treatment of buyers, and timely delivery of goods."

In serious cases, the Central Consumer Protection Authority may act under Sections 20 and 21 to direct corrective action and impose penalties.

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