We have odd LFS's here. The biggest ones (basically bordering on being a chain store, just haven't expanded yet) are fine. The bigger ones follow similar policies to the chain stores, just with better employees. The smaller ones take whatever anyone wants to bring it, breed their own animals, don't bother to clean up much, and basically look like someone has been collecting aquarium parts for a few decades with very little organizing. They were disappearing quickly years ago so maybe it is just the ones that cut the most corners that are still around. A few of them don't even bother to keep much in fish anymore, mostly selling tanks, equipment, and LR/inverts.
Yeah, it costs more, but I would hate to lose those stores. It would be sad to see everything go the way of PetSmart. Did you know that they only stock small animals of one gender, so you can't breed them?? Or maybe it is so the employees don't have to know the difference and make sure to keep them separate... They won't take back fish that get too big, too aggressive, etc. They won't take fish from local breeders, no matter how good the quality. I like my LFS's.
Most the big chains do this with small animals. From what I've seen most the smaller pet stores do it too. It has nothing to do with employees, since sexing small animals isn't all that difficult. It isn't to stop the customer from breeding them either, since the customer can just buy the opposite sex at another store. The reason is simple, they don't want accidents to happen. It is easy for a mistake to be made by the customer or an employee, and suddenly you have pregnant animals. Chain stores don't really know what to do with pregnant animals (can't sell the babies half the time since there is no invoice), customers don't necessarily want that one new pet to become 10, and small animals can make a cage quite bloody and unattractive when babies arrive (hamsters & gerbils especially are known for cannibalizing live babies & dead adults, not a good things for customers to see when picking a new pet).
The reason they won't take back fish is simple. The store has to show an inventory for everything the register rings up. The companies are too big to allow employees to have that type of control over the cash flow. Don't think that the LFS is doing it to be nice and generous either. They do it because they know they can A.) sell you a new fish and B.) make a profit off your overgrown fish.
As for local breeders, I know Pet Supermarket will, not sure about Petco/Petsmart. The managers responsible for doing it just usually don't both, since the fish they make their money off of are available from their primary suppliers. LFS's work on a smaller level and need to draw people in, so local suppliers tend to fill both needs better then the giant ones the chains use.