The agreement, disclosed by the office of Oregon Attorney General Hardy Myers, also requires Dallas-based Blockbuster to make refunds to consumers who claim the campaign misled them into thinking they could keep the video or DVD for as long as they liked.

Many consumers were angry to discover that overdue game and film rentals were automatically converted to a sale on the eighth day after the due date. If they then tried to return it, they were charged a $1.25 restocking fee.

"This is an important case because it sends a clear message to advertisers," said Stephen Levins, executive director of the Hawai'i Office of Consumer Protection. "Misleading slogans are a violation of the law."

According to the agreement, Blockbuster will have to make refund to refund consumers who were either charged the restocking fee, or else paid the full price of the movie they rented.

As part of the settlement, Blockbuster will also have to "dramatically alter" the way it advertises its no late fees policy, according to a prepared statement by Pennsylvania Attorney General Tom Corbett.

Blockbuster spokeswoman Karen Raskopf said that the "no late fees" program will continue at Blockbuster, but that the company has agreed to add signage in its stores to better explain the fine print of the program.

"We think our original communications were very clear but we're happy to do whatever we can to add additional communication to better inform our customers," she said.

The company has already added the signs to most of its stores, she said, as well as created a No Late Fee information center, where customers can read up on the program. She added that 96 percent of Blockbuster's customers return the movies within the seven day grace period. "Less than four percent of our customers are going to auto-purchase program."

Blockbuster launched the no late fees program at its 4,600 U.S. stores on Jan. 1, in the wake of online subscriber Netflix Inc.'s success. Netflix allows consumers to rent up to three DVDs per month for a flat monthly fee of $17.99. They can keep the movies for as long as they want — but can only get a new one once they return the ones they have already viewed.

The states who are not included in the settlement are New Jersey, which has a pending separate suit, and Vermont and New Hampshire.