Spurned by competition from local venues and Internet services such as Netflix, Blockbuster set into effect a policy promising “The End of Late Fees.”

In February, New Jersey Attorney General Peter Harvey sued Blockbuster, claiming the ads were “fraudulent and deceptive.

In defense of Blockbuster, the “No Late Fees” policy is laid out in greater detail on its official Web site, www.blockbuster.com. According to the policy, “there is no additional charge if a member keeps a rental item beyond the pre-paid rental period.”

If a member does not return a rental a week after the due date, Blockbuster will “automatically convert the rental to sale on eighth day after the end of the renting period.” In other words, at this point, the member will be charged the entire sale price for the video, DVD or video game.

However, if the item is returned within 30 days of the sale date, Blockbuster will refund the sale amount back to the customer. The customer still will be charged a restocking fee, though.

Despite the policy details posted on the Blockbuster Web site, several consumer watchdog groups contend the “No Late Fees” policy leaves a considerable gray area within the details.

For example, the latter part of the Blockbuster policy reads as follows: “These rental items are subject to change without notice at any time. Participating stores only.”

According to Harvey, a clear distinction between participating and non-participating stores was not made. Harvey also said Blockbuster’s restocking fees are inconsistent, and can range from $1.25 to $4.50 per rental. Harvey is suing Blockbuster under New Jersey’s Consumer Fraud Act.

In addition to the legal complications, Blockbuster also faces practical considerations. According to the Web site, “However, it is in everyone’s best interest to return their rentals by the due date, even with the end of late fees, to ensure that we have the movies and games you want to rent, available when you want to rent them.”

Because of the policy, Blockbuster has faced shortages in available new releases. Also, according to trade magazine Home Media Retailing, some Blockbuster stores have compensated for the loss of selection by breaking the street date and offering new releases weeks in advance.

In addition to the “No Late Fees” policy, Blockbuster retains some of its traditional rental options. Customers still can consider purchasing a movie or game pass, which allows customers to rent several movies and keep them indefinitely by paying a monthly fee for the pass.

In DeKalb, Dollar Video owner Rob Molina said he believes the controversy surrounding the “No Late Fees” policy is working to his advantage.

“We’re gaining more clients because of all of Blockbuster’s hidden fees,” Molina said. “This is a family-owned business. We’re willing to work with late fees. We’re willing to give people more time or half price if they need it.”

Despite the legal tussles surrounding Blockbuster’s policy shift, the company remains at the forefront of the movie rental business. Still, Molina remains unconcerned about his corporate competitor’s status.

“To give you an idea, we did $18,000 of business on Friday, $24,000 on Saturday, in movie rentals alone. This store isn’t going anywhere.”