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Redbox Sued for Alleged Late Fees

27 Oct, 2009 By: Erik Gruenwedel

An Illinois woman has filed a class action lawsuit alleging that kiosk operator Redbox has reaped more than $100 million in illegal and punitive late fees.

Plaintiff Laurie Piechur, who filed the action Oct. 21 in the Circuit Court for the Twentieth Judicial Circuit of St. Clair County, claims Redbox boasts $1-per-day DVD movie rentals “with no late fees … ever,” but then charges consumers a late fee if the movie is returned “even one minute late.”

The complaint alleges that Redbox, which is owned by Coinstar Inc., has earned millions in illegal fees since launching in 2002. In addition, Piechur says the $25 fee charged by Redbox to consumers who keep a rental beyond 24 days is excessive and “far in excess” of what a new DVD actually costs at retail.

The plaintiff, who said she rented frequently within the last 12 months of the date of the complaint, cited excessive and illegal late fees for two rentals: 27 Dresses from 20th Century Fox Home Entertainment and Fool’s Gold from Warner Home Video.

The seven-count complaint (alleging unfair and deceptive business practices, unjust enrichment, and violation of Illinois rental-purchase agreements, among others) seeks $50,000 in damages per count in addition to attorney and related legal fees.

Eric Wold, analyst with Merriman Curhan Ford who covers Coinstar, characterized the suit as “another instance” of a disgruntled consumer trying to use the legal system “to their advantage.”

Indeed, Wold said the case bears monitoring as it could potentially result in a change to Redbox’s business model.

“That could adversely impact profitability levels and/or require a monetary class action settlement,” Wold wrote in a note.

A Redbox/Coinstar representative said the company does not comment on pending legal action. 

“Providing consumers with value and convenience is our top priority,” said the representative.

Separately, Wold, who reiterated a “buy” status for Coinstar shares, said the company would generate $332.1 million in third-quarter revenue, including $207 million in DVD revenue — up 99% from the same period last year.

The analyst said the focus of Coinstar’s Nov. 5 financial Q&A will revolve around studio relationships with Redbox and margin impact resulting from new “workaround programs” to obtain product from Fox and Warner.

The two studios earlier this year joined Universal Studios Home Entertainment in restricting distribution of new-release product to rental kiosks to at least 28 days after street date.

“We believe we could hear some positive commentary from management on a potential DVD supply deal with a major retailer [previously cited as Wal-Mart],” Wold wrote.

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