Attorney General Lockyer Announces Settlement With Blockbuster Over 'No Late Fees' Advertising

(SACRAMENTO) – Attorney General Bill Lockyer today announced that he and the Attorneys General of 46 other states and Washington D.C. have reached agreement with Blockbuster Inc. to settle allegations Blockbuster misled consumers in advertising its "End of Late Fees" or "No Late Fees" program.

"Blockbuster's No Late Fees campaign may have had a catchy slogan and clever ads, but it did not tell the truth," said Lockyer. "This agreement ensures consumers no longer will be misled, and that those who were deceived can get their money back."

The Attorneys General alleged the advertising campaign misled consumers because it failed to clearly and conspicuously disclose that if customers rent a video or game from Blockbuster and keep the item more than seven days after its due date, they automatically are charged the retail price of the product, unless they return it within 30 days. Even if such customers return the video within 30 days, they still are assessed a "restocking" fee of $1.25, or higher at some franchise stores.

The Attorneys General also alleged the ads insufficiently disclosed the fact the program is offered only at participating stores. As a result, customers of non-participating franchise stores wrongly thought they would not have to pay late fees, according to the Attorneys General.

Blockbuster began advertising the "The End of Late Fees" and "No Late Fees" on December 15, 2004, and the program started on January 1, 2005. The program is available at all company-owned stores and franchise stores that choose to participate. In California, Blockbuster has 624 company-owned stores and 58 franchise stores. Only 13 of the franchises have participated in the program.

Under the terms of the settlement – called an "Assurance of Voluntary Compliance" – Blockbuster has agreed that in any future advertising for the program it will:

Not represent directly or by implication that there are no late fees, or only limited late fees, unless such a statement appears in close proximity to a clear and conspicuous disclosure of the existence of any charge (including any rental fee, restocking fee, or any charge associated with a rental transaction that has been converted to a sale).

Disclose to consumers limitations on stores that actually participate in the program.
Pursuant to the settlement, all Blockbuster stores will clearly and conspicuously display Blockbuster's policy for return of rental products and applicable charges if products are not returned. For the next six months, Blockbuster also will, among other actions:

Post a notice in each store, in multiple locations, that informs customers of the terms and conditions of the "No Late Fee" program; provide brochures containing the terms and conditions of the offer in every store; remove from its company-owned stores the current external window signage and the current internal signage advertising the "No Late Fee" program, and request that participating franchise stores do the same; require any franchise store that is not participating in the "No Late Fee" program to remove any contrary advertising; and provide on its web site a hyperlink to a full explanation of the terms and conditions of the offer.

Under the AVC, Blockbuster also will provide a full refund or credit to any customer of a corporate store, or participating franchise store, equal to the selling price of any rental item converted to a sale under the program. The restitution will be on a one-time per customer basis but will cover all items rented which were converted to a sale before the customer first learned such a conversion would occur. Customers who returned items within 30 days, but paid a "restocking" fee, will be able to obtain a refund of that fee. A request for restitution must be made in writing and allege a failure to understand the "No Late Fee" program.

Customers may obtain refund forms at company-owned stores and participating franchise stores. Blockbuster officials will encourage store personnel to resolve refund requests on the spot, if possible. Customers also may mail refund requests to Blockbuster at 1201 Elm Street, Suite 2100, Dallas, TX 75270, Attention: Mr. Steve Krumholz, Sr. Vice President, by April 28, 2005, or if after that, within seven days of first discovering they are required to make a payment in addition to the initial rental fee.

Customers who rented from a non-participating franchise store, which did not have signs specifying it was not participating in the "No Late Fee" program, and were charged a late fee beyond the initial rental fee will, upon written request to Blockbuster at the above address, receive from Blockbuster rental coupons equal to the number of rented movies on which such charges were assessed. Customers in this category are eligible only if they rented products after December 31, 2004 and prior to today. Customers must provide details of the transaction and allege they did not understand the "No Late Fee" program. Requests must be made by April 28, 2005, or if after that, within seven days of first discovering that late fees were being charged.

Consumers who believe they are entitled to a refund from Blockbuster also may contact the Attorney General's Public Inquiry Unit at www.ag.ca.gov/consumers/mailform.htm. The restitution period ends September 29, 2005.

As part of the settlement, Blockbuster will pay the states a total of $630,000 to reimburse them for fees and costs. California will receive $23,000.