Amazon says it will now compensate consumers for defective products sold on its marketplace

Amazon today is making a significant change to its returns policy, known as the A-to-Z guarantee, to address issues with defective products sold through Amazon’s marketplace of third-party sellers. In the past, Amazon directed consumers to the sellers in the case where a defective product caused property damage or personal injury. Now, Amazon says it will directly pay customers for their claims under $1,000, which would cover more than 80% of cases, at no cost to sellers.

It also says it may step in to pay claims for higher amounts if the seller rejects a claim or is unresponsive on a claim Amazon understands to be valid.

For years, Amazon has attempted to skirt responsibility for the products sold through its marketplace, saying it was only the platform that enabled these transactions to take place — not the liable party in the event of defective product claims. Some U.S. courts over the years have agreed, but others have not, complicating matters. Most recently, a California appellate court ruled that Amazon could be sued when consumers were injured by third-party products it sold on its website. The case at hand was a lawsuit over a defective hoverboard a mother bought for her son in 2015, which burned the customer’s hands and started a fire.

Meanwhile, as Amazon’s marketplace has grown, how defective products and consumer complaints are handled has become even more of problem. Today, Amazon’s marketplace has 6.3 million total sellers, 1.5 million of which are currently active, according to estimates from Marketplace Pulse.

This situation recently came to a head, when last month Amazon was sued by the U.S. Consumer Product Safety Commission, which aims to force Amazon to accept responsibility for recalling potentially hazardous products sold on Amazon.com. The named products in the complaint included “24,000 faulty carbon monoxide detectors that fail to alarm, numerous children’s sleepwear garments that are in violation of the flammable fabric safety standard risking burn injuries to children, and nearly 400,000 hair dryers sold without the required immersion protection devices that protect consumers against shock and electrocution,” the federal agency said.

As a part of that action, the CPSC also wanted Amazon to step in and issue refunds, naming it as a distributor of these products by way of its FBA (Fulfilled by Amazon) program. It pointed out that Amazon stores products at its warehouse, inventories them, and sorts and ships them — and earns fees for doing so. The agency also argued that consumers that consumers who then buy these products may “reasonably believe” they are purchasing from Amazon.

Today, Amazon says it will step in to handle these types of consumer complaints. Instead of telling customers to reach out to the seller, it will allow customers to begin their claims process through Amazon Customer Service.

Starting September 1st, Amazon will take the claim information and notify the seller to help them address the claim. If the seller doesn’t respond, Amazon will step in to address the customer concern at its own cost while it separately tries to pursue the seller. And if the seller rejects a claim that Amazon believes is valid, it will compensate the customer.

The retailer says it will use its existing fraud detection and abuse systems and work with external, independent insurance fraud experts to analyze customers’ claims for validity. This will provide an initial layer of seller protection, as Amazon will stop sellers from having to deal with “unsubstantiated, frivolous, or abusive claims,” Amazon explains. It will also offer product liability insurance to sellers through a new service, Amazon Insurance Accelerator, which will offer a selection of trusted providers to shop from.

Amazon likely believes this new policy will help to head off new regulations that could impact how it runs its marketplace business. In announcing the news, Amazon stated that it’s “going far beyond our legal obligations and what any other marketplace service provider is doing today to protect customers” — a message clearly meant to dissuade further regulation.

The changes will roll out initially in the U.S., Amazon says.