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Having read ebooks which have provided information on the type of paper they've been printed on , I wouldn't consider DRM free status as relevant information.
I think that asking patrons to fund the replacement of materials they've lost (or failed to return) or lose borrowing privileges is a generally reasonable policy although it does make sense to provide options for those who can't afford to replace the items. One possibility would be to have the loss of borrowing privileges be for a set term rather then indefinitely along with providing various ways to work off the fine.
Fines for failing to return items on time is something that can be debated although I think that if there are no fines there should be tighter borrowing limits to provide some incentive to return books in a timely fashion.
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