NEW YORK (CNN/Money) - New Jersey Attorney General Peter Harvey sued Blockbuster Inc. Friday, claiming the video rental chain is deceiving customers with its new 'No More Late Fees' rental policy.

The lawsuit accused the movie rental chain of deceptive advertising and violating the state's consumer fraud laws.

"Blockbuster boldly announced its 'No More Late Fees' policy, but has not told customers about the big fees they are charged if they keep videos or games for more than a week after they are due," the attorney general said in a statement.

"There is no question about it – there is a violation of New Jersey's consumer fraud act," Harvey told CNN/Money.

Under Blockbuster's (Research) new policy, put into effect on Jan. 1, customers can keep a rental for one week past the due date at no additional charge. After that, they are charged a restocking fee of $1.25. And if the overdue item is kept for more than 30 days, Blockbuster will charge the customer the retail value of the item.

In a brief statement, Blockbuster defended the new policy, saying it was surprised and disappointed by the lawsuit.

"The fact is there are no longer late fees at Blockbuster," the company said. "We're disappointed he (Harvey) 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."

The company said it was "surprised" that Harvey did not contact company officials to allow them to explain the new policy.

According to the Attorney General, investigators from the division of consumer affairs began examining the matter as soon as the policy went into effect as part of a pro-active consumer effort.

"Our principal goal is restitution to the consumer," Harvey said.

When asked if he ever rents movies from Blockbuster Harvey responded, "my kids do."

Dallas-based Blockbuster (Research), with some 9,000 outlets in the United States, is reportedly facing growing opposition from antitrust enforcers over its hostile takeover bid to acquire Hollywood Entertainment Corp (Research)., its smaller rival.

Hollywood Entertainment's board on Thursday rejected Blockbuster's bid in favor of a lower bid from Movie Gallery (Research), saying the Blockbuster deal "raises significant antitrust issues" that could cause delays or a rejection of the transaction by the Federal Trade Commission.

Blockbuster shares closed modestly higher on the New York Stock Exchange Friday.