Blockbuster Inc. agreed to make refunds to consumers after officials in 47 states charged that the nation’s largest movie-rental chain deceived the public with advertisements that proclaimed the end of late fees.
Dallas-based Blockbuster also agreed to pay the states about $630,000 to reimburse them for the costs of their investigations into consumer complaints and said it would change the advertising of its late-fee policy.
Blockbuster, however, said it would not scrap the fees — only do a better job of disclosing them.
Chief executive John Antioco said even with refunds and the cost of new signs and brochures to explain the policy, the settlement will cost Blockbuster less than $1 million. It had revenue of more than $6 billion last year.
Tuesday’s agreement was the latest setback in Blockbuster’s efforts to charge customers who are late returning rented movies and games. Blockbuster had hoped that the “No Late Fees” policy it launched in January would end a long-simmering cause of consumer resentment against the rental chain.
The settlement also followed closely on the heels of Blockbuster’s failure to acquire rival Hollywood Entertainment Corp. Antitrust regulators had raised objections to the deal, fearing that an even larger Blockbuster would wield too much power over rental prices.
In the face of questions from the Federal Trade Commission, Blockbuster announced Friday that it was abandoning its pursuit of Hollywood.
Hollywood’s shareholders are expected to approve a sale to Movie Gallery Inc. next month, which will produce a much larger competitor to longtime industry leader Blockbuster.
State officials began looking into Blockbuster’s “No Late Fees” policy soon after it took effect Jan. 1. Under the policy, consumers who kept movies or games seven days past their due date were charged on their credit card as if they had bought the item. If they returned the rental later, they were charged a restocking fee, typically $1.25.
Consumers were unaware
State officials said many consumers were unaware of the fees because they were not mentioned in advertising. They said many consumers believed they could keep the rentals as long as they wanted.
“Blockbuster promised the end of late fees ... but consumers across the country were surprised when they got a bill for the full price of the video or for a game that they checked out from Blockbuster,” said Texas Attorney General Greg Abbott.
Blockbuster said that it disclosed the charges when it introduced the “No Late Fees” program, noting that many media accounts at the time mentioned the new charges.
“We think it was pretty well communicated from the beginning, but we are happy to make it even clearer,” Blockbuster CEO Antioco said.
Last month, New Jersey filed a lawsuit against Blockbuster. Other states considered joining together in a false-advertising lawsuit, claiming that Blockbuster did not fully explain the new charges in an ongoing advertising campaign.
Blockbuster headed off the potential new lawsuit with Tuesday’s settlement, which calls for Blockbuster to post more in-store signs that describe potential charges and to print on each receipt the amount customers would be billed if they keep a DVD, tape or game beyond the rental time and a 7-day grace period.
Customers who were charged for a movie or a restocking fee since Jan. 1 would be entitled to a full refund under the agreement.
Antioco said the company is continuing to negotiate with New Jersey officials to resolve that case. Vermont and New Hampshire were not part of either case.
The company said fewer than 4 percent of customers have been charged for the purchase of a movie or game since Jan. 1.
Still, the policy continued to anger some consumers.
Claude Johnston, a Blockbuster customer in Dallas, said he didn’t know about the fees until a store employee told him he would be charged more than $11 for not returning a copy of “Ray.” He said he returned the movie but would refuse to pay a $1.79 “restocking fee.”
“I’ve not gone back, and I’m not going back,” Johnston said.