Wow…just checked settings and the option to disable repackaging is gone.
Was there a notice about this -

Refurbish Unsellable Customer Returns:
Learn more

Repackaging services

FBA repackages your eligible customer returns so that they can be sold as new. The service applies both to retail and FBA return items, and cannot be disabled in your settings.

Each returned unit is evaluated to determine whether it can be repackaged. Repackaging can include replacing the poly bag or bubble wrapping, or re-boxing the item. It can also include repackaging of branded and unbranded boxes, and poly bags.

Product eligibility

As categories are added to repackaging services, your units will automatically be included.

Repackaging-eligible categories

• Home Improvement
• Kitchen
• Pet Products
• Sports
• Home
• Office
• Automotive
• Camera
• Wireless
• Lawn & Garden
• Business, Industrial, and Scientific Supplies
• Musical Instruments
• Shoes
• Apparel
• Fashion

Return policy for repackaged products

The FBA returns policy also applies to repackaged products. For more information, see the FBA customer returns policy help page.