DOJ: Lautenschlager Announces Blockbuster Will Pay States $630,000 Over Misleading Advertising For “No Late Fee” Program

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Scot Ross

Wisconsin To Receive $12,500 To Cover Investigative And Legal Costs; Consumers Eligible For Full Refunds Must File With DOJ Or With Blockbuster By April 27, 2005

MADISON – Attorney General Peg Lautenschlager today announced that she and the attorneys general of 46 other states plus the District of Columbia reached agreement with Blockbuster, Inc., to settle allegations that it deceived consumers in the advertising of its “No Late Fee” program. Despite Blockbuster’s ads, consumers were charged fees for un-returned and late DVDs, videos, or games.

“This case is important because it reminds advertisers that they cannot use a catchy slogan or phrase if that slogan is misleading,” Lautenschlager said. “Slogans can be misleading and violate the law if they do not fully and accurately describe the complete terms and conditions attached to the offer.”

The attorneys general alleged that the advertising campaign was misleading because it failed to disclose that if a consumer who rented a video or game from Blockbuster kept the item out more than seven days after its return due date, the consumer would be charged for the selling price of the item, and that if the consumer wanted to return the item the consumer would be charged a “restocking” fee of $1.25, or higher at some franchise stores.

The attorneys general also alleged there was insufficient disclosure of the fact the program was offered only at participating stores and that some customers of nonparticipating franchise stores thought they would not have to pay late fees.

As part of the settlement, which Blockbuster entered into without any admission of wrongdoing, Blockbuster will pay the states a total of $630,000.00 for attorneys’ fees, costs of investigation and consumer protection. Of that amount, Wisconsin will receive $12,500.00.

Blockbuster began advertising “The End of Late Fees” and “No Late Fees” on December 15, 2004, with the program starting on January 1, 2005. The program is available at all company-owned stores and those franchise stores that chose to participate. In Wisconsin there are 71 company-owned stores and 4 franchise stores.

Under the terms of the settlement, Blockbuster has agreed that in future advertising for the “No Late Fee” program, it will:

— Not represent that there are no late fees or only limited late fees unless such representation contains a clear disclosure of the existence of any charge (including any rental fee, restocking fee, or charge associated with a rental transaction that has been converted to a sale).

— Advise of any limitation on the stores participating in the offer.

Blockbuster also agreed that all stores will clearly and conspicuously display Blockbuster’s policy for return of rental product and applicable charges if the product is not returned.

For the next six months, Blockbuster will also:

— Post a notice in each store in multiple locations in areas reasonably calculated to inform customers of the terms and conditions of the “No Late Fee” program;

— Clearly include the terms and condition of the “No Late Fee” program on policy statements that appear at the end of some of the aisles in every store;

— Provide brochures containing the terms and conditions of the offer in every store;

— Remove from its stores the current external window signage and the current internal signage advertising the “No Late Fee” program and request and recommend 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;

— Have a hyperlink in at least 14 point font on its website ( which explains the terms and conditions of the offer; and,

— Tell consumers who are sent written notification by Blockbuster that a rental has been converted to a sale that to put credit back on a credit card the card must be produced at the store.

Blockbuster also agreed to provide a full refund or credit to any customer of a corporate store or a franchise store that participated in the “No Late Fee” program, equal to the selling price of any rental items converted to a sale under the “No Late Fee” program, which rental items were not returned within thirty days from the sale date, upon the return in good condition of the items rented.

The agreement states the restitution shall be on a one-time per customer basis but will cover all items rented which were converted to a sale before the customer learned on the first rental transaction that a sale would occur. If the customer already returned the item but paid a “restocking” fee, the customer can obtain a refund of the “restocking” fee. A request for restitution must have been or be made in writing and allege a failure to understand the “No Late Fee” program.

Consumers who feel they are entitled to a refund from Blockbuster can either file a complaint form with Mr. Steve Krumholz, Sr. Vice President, Blockbuster, 1201 Elm Street, Ste. 2100, Dallas, TX 75270, OR can file a complaint with the Wisconsin Department of Justice Office of Consumer Protection at (608) 266-1852 or 1-800-998-0700.

Complaint forms may be obtained at Blockbuster stores or by calling the Wisconsin Department of Justice Consumer Protection office (608-266-1852 or 800-998-0700). Requests for refunds must be made by April 27, 2005, or if after that, within seven days of first discovering that late fees were charged. The restitution period ends September 27, 2005.