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New Jersey Sues Blockbuster Over ‘No Late Fees' Program

18 Feb, 2005 By: Holly J. Wagner

New Jersey's attorney general and acting director of consumer affairs have sued Blockbuster, saying the chain has deceived customers with its no-late-fees ads.

The complaint, filed today in New Jersey Superior Court, centers on the fine print in Blockbuster's nationwide advertising campaign for “the end of late fees” and seeks compensation for consumers whose accounts were charged with forced sales or restocking fees.

“Blockbuster boldly announced its ‘No More Late Fees' policy, but has not told customers about the big fees they are charged if they keep videos or games for more than a week after they are due,” Attorney General Peter C. Harvey said in a statement. “Blockbuster's ads are fraudulent and deceptive. They lead people to believe that an overdue rental will cost them absolutely nothing when, in fact, customers are being ambushed with (a) late fees in some stores, (b) so-called ‘restock fees,' and (c) credit card or membership account charges equal to the purchase price of the video.”

A Blockbuster statement said the case was a surprise, although the company had disclosed in a Securities and Exchange Commission filing that the company was aware of a number of attorneys general inquiring about the policy.

“Instead of participating in discussions to allow us to explain our program, the state attorney general has apparently elected to file this lawsuit,” the company said. “We've taken a number of very thorough steps to let customers know how our new program works.”

Those steps include training for store employees, distributing brochures detailing the terms and posting the terms online. Blockbuster has also dispatched mystery shoppers to measure employee execution of the steps. Finally, the company said customers who keep titles out past due date get two phone calls and a postcard during the grace period and oneon the eighth day the title is out.

The case alleges that the list of disclaimers — “participating stores only,” ”membership rules apply for rentals” and “see store for complete details” — “appears briefly superimposed on the screen” during TV ads, and that radio ad disclaimers are even more scant. The complaint also notes that customers must drill through several Web pages to access the full terms of the offer and that store employees are not fully or accurately disclosing terms.

Disparities between franchisee and corporate store policies are also causing confusion. There are 170 corporate and franchised Blockbuster stores in New Jersey, according the complaint, and some franchisees have six-day rental policies while corporate stores have seven-day policies, putting franchisees at odds with the advertised policy that the renter is converted to a buyer after the eighth day. Although consumers have 30 days to return the title for a refund, corporate stores deduct a $1.25-per-title restocking fee, while some franchisees may deduct as much as $4.50. Many nonparticipating franchise stores also are not prominently advertising that fact, the complaint states.

The suit alleges misrepresentation, knowing omissions of material facts, unconscionable commercial practices and violations of state advertising regulations. Along with restitution, it seeks a change in advertising to comply with New Jersey law.

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