Will Pay $630,000 to End Fight With 47 State Attorneys General

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LOS ANGELES ( -- Blockbuster will pay $630,000 to settle claims from 47 states that its “No Late Fees” ad campaign misled consumers.
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State attorneys had alleged that Blockbuster’s “No Late Fees” ad campaign, launched at the beginning of the year, did not tell consumers that rentals would be converted to sales after seven days, that there would be restocking fees for returning late rentals and that not all of the chain’s 5,000 stores were participating in the program.

The retailer, the largest video rental chain in the country, also will supplement its communications to consumers in its stores, aiming to make the company’s policies on returning videos and games clearer.

Case still pending
The attorney general in New Jersey first filed suit against the chain, which is still pending.

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

Blockbuster, as part of the agreement, will reimburse consumers who were charged restocking fees or whose rentals were converted to sales if they say they did not understand the policy. The total tab, including the settlement with the states and the District of Columbia, is unknown.

More signage and brochures
Blockbuster executives today said they will add more in-store signage and brochures explaining the details of the “No Late Fees” program. They also will set up “No Late Fees Info Centers,” redesign the company’s receipts to include program information, make the details easier to access on and reinforce employee training. The new communications from Blockbuster to consumers are scheduled to be in place by Thursday.

The chain will give free rental coupons to consumers who incurred fees from non-participating franchise stores without realizing those locations were not part of the “No Late Fees” program.

The “End of Late Fees” ad campaign launched in January with national radio, TV, online and outdoor ad placements. Signs about the program are still in stores and online, but the national TV and radio media, using the Roy Orbison song “It’s Over,” are no longer running.

Ad agency Doner
The campaign was created by Doner, Blockbuster’s independent ad agency in Southfield, Mich. Executives at the agency referred questions to the client.

Blockbuster’s 4,500 company-owned stores are participating in the program, as are about half its 600 franchisees.

Blockbuster ads carried a disclaimer that said “participating stores only,” and executives said there are a number of steps taken to inform the consumer about the program’s details.

Rentals, membership growing
Rentals and memberships are growing significantly for the first time in two years, Blockbuster spokesman Randy Hargrove said. “The feedback we’ve gotten from our consumers has been overwhelmingly positive,” he said.

Customer behavior has shown that they do understand the program, said Nick Shepherd, Blockbuster’s president of U.S. store operations. “However, we want to do all we can to make sure everyone understands the program because the more they do, the more we believe they’ll rent at Blockbuster,” he said.

Blockbuster launched the campaign to better compete with video-on-demand, online services such as Netflix and retailers like Wal-Mart. Ads running now tout the chain’s online service, which has undercut Netflix on price.

The company this week dropped its hostile takeover bid of its chief rival, Hollywood Entertainment, rather than fight what promised to be a tough regulatory battle with the Federal Trade Commission.

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