New Jersey yesterday sued Blockbuster Inc., saying its new "End of Late Fees" policy is deceptive and fraudulent because consumers are charged hidden fees if they fail to return videotapes, games or DVDs within a week after their due date.
State Attorney General Peter C. Harvey said Blockbuster converts any rental more than eight days late to a sale. That could mean a fee of $8 to $20 being added to a customer's credit card. Blockbuster will reverse the charges if customers return overdue items within 30 days, but then they are charged a minimum $1.25-per-item restocking fee, Harvey said.
Blockbuster's ads "lead people to believe that an overdue rental will cost them absolutely nothing when, in fact, customers are being ambushed" with extra fees, Harvey said in a statement announcing the lawsuit. The attorney general also said Blockbuster fails to note prominently that not all of its stores participate in the program.
Blockbuster spokesman Randy Hargrove took issue with the lawsuit, saying "the fact is there are no longer late fees at Blockbuster." He said the company was surprised at the lawsuit and disappointed, calling the program "terrific."
"We've received tremendous feedback from both our customers and our employees," he added. Hargrove said that 5,100 of the nation's 5,600 Blockbuster stores are participating in the program.
Other states have been investigating the same issues, said an assistant attorney general from another jurisdiction who asked not to be identified by state because such investigations are confidential.
Blockbuster Chairman John F. Antioco hailed the "No More Late Fees" policy as "the biggest and most important customer benefit we've ever offered in our company's history," when he announced the program in December. It went into effect on Jan. 1.
Under the program, customers have an eight-day grace period -- although the lawsuit says charges are often posted on the seventh day -- in which to return late videos, games and DVDs. After that, charges for purchase or restocking apply.
The New Jersey lawsuit said that at some stores the restocking fee can be as high as $4.50.
Blockbuster's Hargrove said that the chain sends three reminders to customers during the eight-day grace period -- two phone calls and one post card. "Now you can keep a new release title for up to 39 days. If you decide you don't want that product, you are charged a $1.25 restocking fee plus the rental fee. Under the previous program, if you kept a product that long, you would have been charged $40 or more," Hargrove said. "Anyone would understand you won't be able to keep a product forever."
Hargrove acknowledged that several other states have inquired about the new program but said that New Jersey did not. "They never directly contacted us" to discuss the program, electing to file a lawsuit instead, he said.
New Jersey officials said the state began investigating the program after it saw Blockbuster's ads. It has received only a handful of complaints so far, in part because the new charges incurred from the new policy are just starting to appear on this month's credit card bills.
New Jersey is seeking restitution for Blockbuster's customers and penalties of up to $10,000 for each violation of the state's consumer fraud law.