More than a third of online retailers short-change customers by failing to give a full refund for returned goods, according to the Office of Fair Trading (OFT).

The main reason for the shortfall is a routine failure to refund the original cost of delivery for returned items, the Government agency found. This and other shortfalls such as retailers making extraneous charges were uncovered by the OFT as it continued its research into internet shopping, which it started in June 2007.

In the current report published on Friday, it said that the latest web sweep of top online retail sites suggested most were abiding by at least the key requirements of statutory laws. This includes the Distance Selling Regulations (DSR). But it said its findings also show there is key room for improvement.

Internet retailing grows at about 30 per cent each year. According to the IMRG, the online retail industry body, in 2007 the industry was worth more than £46 billion. However in its June 2007 report, the OFT found that most internet shoppers were unaware of consumer protection laws – in particular they did not know about their right to cancel.

To exacerbate the situation, the study found one in four UK-based online traders were unaware or only slightly aware of the laws applying to internet shopping.

In December 2007 the OFT carried out another web sweep of the 530 most popular sites to see if things were improving and retailers complied with key requirements of the DSR and Electronic Commerce Regulations (ECR).

The sweep carried out by officers from 90 Trading Standards offices across the UK suggest that most big, UK-based online retailers do comply.

However the OFT identified areas where there is room for improvement, including providing information on consumer rights to return goods, giving customers the correct refunds and not imposing spurious charges, such as restocking fees.

Some retailers also persist in failing to provide adequate contact details, such as a physical address and an email address, which is mandatory under the ECR. Nearly four in ten sites did not make it clear that they impose compulsory additional charges, which are only discovered when the consumer reaches the checkout stage.