RUKMINI CALLIMACHI, The Associated Press, reports:

PORTLAND, Ore. (AP) — Blockbuster Inc. has agreed to pay about $630,000 to settle claims by Michigan, 46 other states and the District of Columbia that the movie rental chain deceived consumers with its “No Late Fees” campaign.

The agreement, disclosed Tuesday, also requires Dallas-based Blockbuster to make refunds to consumers who claim the campaign misled them into thinking they could keep the video or DVD for as long as they liked.

Many consumers were angry to discover that overdue game and film rentals were automatically converted to a sale on the eighth day after the due date. If they then tried to return it, they were charged a $1.25 restocking fee.

According to the agreement, Blockbuster will have to refund consumers who were either charged the restocking fee or who paid the full price of the movie they rented.

As part of the settlement, Blockbuster will also have to change the way it advertises its no late fees policy, according to Michigan Attorney General Mike Cox.

“Customers should not have to search for the real price hidden behind catchy slogans and disclaimers,” Cox said in a statement.

Blockbuster spokeswoman Karen Raskopf said that the “no late fees” program will continue at Blockbuster, but that the company has agreed to add signs in its stores to better explain the fine print of the program.

“We think our original communications were very clear but we’re happy to do whatever we can to add additional communication to better inform our customers,” she said.

The company has already added the signs to most of its stores, she said, as well as created a No Late Fee information center, where customers can read up on the program. She added that 96 percent of Blockbuster’s customers return the movies within the seven-day grace period.

Blockbuster launched the no late fees program at its 4,600 U.S. stores — 189 in Michigan — on Jan. 1, in the wake of online subscriber Netflix Inc.’s success. Netflix allows consumers to rent up to three DVDs at a time — and an unlimited number per month — for a flat monthly fee of $17.99. They can keep the movies for as long as they want — but can only get a new one once they return the ones they have already viewed.

The states that are not included in the settlement are New Jersey, which has a pending separate suit, and Vermont and New Hampshire.

Associated Press Writer David Eggert contributed to this story from Lansing, Mich.

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Michigan Attorney General Mike Cox:

3/29/2005, 2:24 p.m. ET