Blockbuster Facing Class-Action Suit for Late Fees

The world's largest video rental chain has been slapped with a class-action lawsuit over what plaintiffs' attorneys are calling "excessive late fees." Asserting that late fees are punitive and exceed any real costs incurred, Santa Monica law firm O'Neill, Lysaght & Sunn, LLP filed suit against Blockbuster Inc. Wednesday, August 23, in Los Angeles. The plaintiff: one Monica Rocha of Hollywood, and a "class" of other Blockbuster customers.

Late fees are a substantial source of income for video rental stores, and a constant problem for less-than-vigilant movie fans, who often pay double the rental price on a tape or disc because they fail to return it in time. With more than 7000 outlets, Blockbuster reported taking in $203.2 million in late fees during the fiscal quarter ending June 30. That's approximately $9700 per month per store in late fees alone.

Blockbuster overhauled its late-fee policy in February, initiating a "convenience program" that calculates the late fee based on the rental period rather than on the amount of time an item was actually overdue. Under the new policy, a customer with a three-day rental who comes in a day late will be charged for an additional three-day rental. Blockbuster executives have defended the policy, saying it benefits customers who wish to extend their rentals.

The plan has also helped the corporate bottom line. During the same quarter in 1999, Blockbuster took in $164.7 million in late fees, according to records filed with the Securities and Exchange Commission. Revenue from late fees leaped 23% for the quarter this year, attributable both to the new policy and to an increase in general business.

The number of Blockbuster customers who will see any money from a possible settlement can't be determined, but it isn't likely to include anyone but Ms. Rocha. When settled, class-action suits typically preclude any member of the class from subsequently suing the defendants. The real winners may be her attorneys, who could collect millions if they succeed.