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ATLANTA -- Reloadable prepaid card company nFinanSe Inc. is taking legal action against InComm for alleged price fixing and breach of contract. The company has filed a federal lawsuit in U.S. District Court, Northern District of Georgia, according to the nFinanSe's legal team.
Tampa, Fla.-based nFinanSe sells prepaid reloadable debit cards through 16,000 U.S. retail outlets, including Cumberland Farms, Dollar General and Winn Dixie. Atlanta-based InComm is the industry's largest debit card distributor.
According to nFinanSe's lawyers, InComm sells its own debit cards in addition to distributing other companies' cards, setting up a competitive field between itself and the customers it serves.
In its lawsuit, nFinanSe said InComm was unhappy with nFinanSe's pricing, which is the industry's lowest, and so it tried to get nFinanSe to join its debit-card network, which requires members to charge a "reload" fee of $3.95 each time they add more cash to the card. That reload fee is $1 more than nFinanSe currently charges. The suit was filed on Oct. 31 under seal; the seal was lifted on Nov. 14.
In a letter to retailers on Monday, nFinanSe CEO Jerry Welch said the company regrets that it was forced to take legal action, but it felt it "had no choice." He added that the dispute would not have any impact on the retailers' businesses or nFinanSe's commitment to its customers.
"We believe in free competition. We have never suggested that a retailer should carry an nFinanSe [general purpose reloadable] card only," Welch wrote. "Instead, we have recommended that retailers offer multiple GPR cards from different program managers in order to provide store customers with choice and selection, just as you do in other merchandise categories. Further, we feel strongly that a retailer should have a product in their assortment, which is priced comparably to Walmart. In today's difficult economic environment, no retailer can afford to concede a price advantage to Walmart if they can avoid it."
The legal battle centers on nFinanSe's Visa GPR card, which launched last year. The complaint alleges that InComm refuses to distribute the card to new retailers because it is afraid nFinanSe's GPR cards "might cannibalize InComm's overall higher-priced cards."
"InComm has ignored the request of at least 10 retail chains that have formally requested to carry nFinanSe's popular Visa-branded GPR cards pursuant to nFinanSe's distribution agreement with InComm," the complaint states.
Furthermore, the complaint states that "InComm magnified its breach by making it clear to nFinanSe that InComm would recommence performing its contractual obligations only if nFinanSe joined an illegal price-fixing conspiracy, i.e. by joining InComm's Vanilla Reload Network."
"Even though we are still relatively modest in size, we refuse to be weak and we refuse to be bullied. We will do whatever is necessary to protect our business, and our ability to serve our retailer partners and your store customers," Welch wrote to retailers.
An InComm spokesperson told CSNews Online that the company does not comment on pending litigation.
Tim Sloane, director of Mercator Advisory Group's prepaid advisory service, told American Banker that the dispute should not have a direct impact on retailers, who would likely be happy to adopt the Vanilla Visa reload system.