According to the lawsuit, filed in federal court in Northern California, Netflix maintained records on its users for at least two years after they deleted their accounts.
'Netflix has failed [to] uphold its duty to protect the privacy rights of its current and former subscribers, and in the course, has violated federal and state laws regarding the destruction of [personally identifiable information]," the lawsuit alleged.
In its filing, Netflix noted that it hadn't anticipated having to pay to settle the charges.
"The Company had previously evaluated this claim and determined it to be immaterial and that a potential loss was not probable," Netflix wrote.
A Netflix spokesman noted the company did not admit wrongdoing by agreeing to the settlement. He also said the case is unrelated to Netflix's lobbying for changes to the VPAA.
"This matter is unrelated to the company’s concerns about the ambiguities contained in the VPPA, which keep Netflix from offering its U.S. members the ability to share their instant watching information with their Facebook friends, an experience Netflix members currently enjoy in 46 other countries," he said.
Congress passed the VPAA in 1988 after the Washington City Paper published a list of recent video rentals by Supreme Court nominee Robert Bork during his contentious nomination process. Although his rental history was mostly innocuous, members of Congress were outraged at the breach of privacy.
--Updated at 10:16 p.m.