Suit claims consumer fraud.

New Jersey Attorney General Peter C. Harvey filed a lawsuit Feb. 18 against Blockbuster Inc., claiming that the rental chain's "no late fees" policy violates the state's Consumer Fraud Act.

The suit, filed in Mercer County, N.J. Superior Court, alleges that Blockbuster did not disclose in its advertisements for the policy -- launched Jan. 1 --that consumers are automatically charged the full price of the title if it is returned after a one-week grace period.

Additionally, it alleges that advertising did not disclose that titles returned within 30 days after the grace period, the automatic charge would be reversed but consumers would still be charged a $1.25 restocking fee.

The New Jersey statute prohibits concealment of any material fact relating to the sale or advertisement of merchandise.

AG Harvey said in a statement, "Blockbuster's ads are fraudulent and deceptive. They lead people to believe that an overdue rental will cost them absolutely nothing, when, in fact, customers are being ambushed with: (a) late fees in some stores, (b) so-called 'restock fees,' and (c) credit card or membership account charges equal to the purchase price of the video."

The suit seeks civil penalties of up to $10,00 for each violation of the law. It also seeks restitution for customers who were automatically charged for a title, restocking fees or late fees by a store not participating in Blockbuster's national "no late fees" policy.

"The fact is there are no longer late fees at Blockbuster, and we are surprised that the New Jersey State Attorney General never directly contacted us about this," Blockbuster said in a statement. "We're disappointed he took this action, because we believe our 'end of late fees' program is a terrific program and we've received tremendous feedback from both our customers and employees."

Thirty-five other state attorneys general offices are currently investigating Blockbuster's policy.

Blockbuster also states that it has taken "a number of very thorough steps to let customers know how our new program works. Blockbuster has trained store employees on how to effectively communicate the program to customers, both on the sales floor and at checkout. Blockbuster stores offer 'free end of late fees' brochures that include questions and answers explaining the program."

The Dallas, Texas-based Blockbuster operates about 170 stores in New Jersey and 4,500 nationwide.