Points don't automatically get removed when a loyalty customer returns an item(s) that they received points for. I know you can manually adjust but this should be a no brainer to automatically removed during a return.
You're correct that the points don't automatically remove once a refund has been made. At this time, you have to manually remove the points from a customer's profile after a refund is initiated.
To do so from the Square App:
- Tap Customers.
- Search for your customer by name or phone number.
- Tap Edit next to their Loyalty status.
- Adjust points using the + / - signs.
- Tap Save.
I do see what you mean by it making sense to be automatic though so I will let our Loyalty team know about this suggestion.