Blockbuster in Talks to Resolve State Probes

Blockbuster Inc. is in talks aimed at resolving an investigation by at least 37 states, including California, into whether the company has deceived customers with its recent “End of Late Fees” advertising campaign, people familiar with the matter said Monday.

Blockbuster’s television ad campaign, run in January, prompted a lawsuit by New Jersey’s attorney general and then the probe by the states’ attorneys general.

The New Jersey lawsuit said Blockbuster failed to disclose that not all its franchisees offered the new rental policy or that customers could be charged restocking fees -- or even forced to purchase a video or game -- for failing to return rented titles within a month of due dates.

A spokesman for Florida Atty. Gen. Charlie Crist, whose office has investigated Blockbuster’s claims, would not discuss settlement terms. But spokesman Jon Peck said: “There are discussions going on, and my sense is that they are getting closer.”

Another person familiar with the talks expected a settlement by week’s end and said the terms could force Blockbuster to pull or change ads that promised no late fees.

“Given the concerns we had about the marketing campaign, it would be reasonable to assume that any agreement we reach with Blockbuster will address those concerns,” the source said.

A Blockbuster spokesman, Randy Hargrove, said the company would not comment on whether a settlement was near.

“It is our practice to always work closely with state attorneys general or any other governmental body to resolve any questions they have about our company, and we have been doing that with our ‘End of Late Fees’ program,” Hargrove said.

Blockbuster advertised its “End of Late Fees” in January and has since posted disclaimers on its website advising that customers will be charged the purchase price for a game or movie returned more than seven days beyond the due date.

“The member then has 30 days to return the product and receive a credit for the selling price charged, less a $1.25 restocking fee,” the website says. “These terms available at participating stores only.”

Dallas-based Blockbuster, the nation’s No. 1 movie rental company, has been locked in a price war with online DVD renter Netflix Inc. and in a hostile takeover battle with Movie Gallery Inc. for No. 2 rental chain Hollywood Entertainment Corp.

Blockbuster shares slipped 5 cents to $8.62 on the New York Stock Exchange.