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Redbox Facing Late-Fee Class Action Suit

Plaintiff claims she was charged despite company policy

By Jon Hood
ConsumerAffairs.com

October 26, 2009

Piechur's suit lists several instances in which she was charged a fee for returning videos after 9 P.M., the required return time. On at least two occasions – one of which fittingly involved the movie "Fool's Gold" -- Piechur was charged the ominous-sounding $25 "maximum fee." That fee is only imposed on consumers who return a DVD after the end of the "maximum rental period," which varies from disc to disc. Those subject to the fee are allowed to permanently keep the DVD, however.

The plaintiffs contend that a surprising amount of money is at issue in the case. Piechur's attorneys say that between January 2002 and now – the period covered by the complaint – Redbox has collected around $100 million in "illegal and punitive" late fees.

Unlike other video rental companies -- Netflix and Blockbuster, for example -- Redbox doesn't have full-fledged stores or a video-by-mail operation. Instead, the company sets up kiosks in grocery stores and pharmacies, and allows customers to rent videos for $1 per night. Aside from its convenience, the company attracts customers with its no-fee policy; Redbox's website touts "Easy DVD rentals with no late or hidden fees ever."

According to Piechur's suit, though, the no-fee policy is little more than smoke and mirrors. The suit correctly notes that customers who don't return the video by the 9 P.M. deadline are charged an extra $1. Under the company's policy, the customer has essentially re-rented the video for an additional 24-hour period. Piechur's complaint says this practice is illegal, noting that "the customer never actually entered into a contract for a re-rental, nor signed an agreement" and that the fee was "unilaterally imposed."

The suit also takes issue with Redbox's $25 "maximum fee," which it says is much too high for a used disc. Piechur notes that "Redbox itself only charges $7 for used DVDs at its kiosks -- less than one-third the amount it charges its customers for a used DVD." Thus, the suit contends, consumers are paying top dollar for an "inferior quality disc."

Piechur's claims are technically true, but they are unlikely to gain much traction in court. So-called "adhesion contracts" -- those with predetermined, non-negotiable terms -- are not only valid, but extremely common. Any time you get a new credit card, lease an apartment, or even create an eBay account, you enter into and are bound by such a contract.

Adhesion contracts are only unenforceable when they contain unconscionable terms. Paying $1 for every day a DVD is late hardly seems unconscionable; indeed, most people would consider this a bargain. The $25 maximum fee might be a closer call, but it is unlikely to be found unreasonable. Indeed, Blockbuster has a similar policy -- any video rental is converted to a purchase on the eighth day the DVD is out.

Piechur's suit, which includes counts for unjust enrichment, fraud, and violation of several Illinois state laws, asks for $350,000 plus attorneys' fees.

Redbox has a uniquely American history. The company was originally owned by McDonald's Corp. -- that of fast food fame -- and has since been acquired by Coinstar, another kiosk-centric company that converts coins into spendable money for an 8.9 percent fee.

The company has recently been occupied with litigation against Universal Studios, Warner Brothers, and 20th Century Fox, after the movie studios refused to release movies to Redbox until 28 days after they hit store shelves. This policy was aimed at preventing Redbox from eating into bona fide DVD sales, but Redbox says it violated antitrust laws.

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