nFinanSe Alleges Debit Card Price-fixing Bid

nFinanSe Inc., a company that sells prepaid reloadable debit cards through 16,000 U.S. retail outlets, among them Winn-Dixie, Cumberland Farm and Dollar General, has filed suit against its distributor, InComm Inc., in federal court, claiming that it not only refused to distribute nFinanSe’s Visa-branded cards, but that it also tried to strong-arm the company into hiking fees on those cards. In addition to being nFinanSe’s distributor, InComm sells its own prepaid reloadable cards, in competition against nFinanSe’s products.

Tampa, Fla.-based nFinanSe alleged in its complaint that when it wouldn’t raise its reload fee, InComm reneged on a deal to distribute nFinanSe cards to certain retailers. NFinanSe’s prepaid cards operate on the networks of Visa, American Express and Discover Financial Services.

The lawsuit was filed at the end of October in the U.S. District Court for the Northern District of Georgia. InComm, the largest distributor of prepaid debit cards in the United States, serving 200,000 stores across the country, is based in Atlanta.

The allegations come at a time when the prepaid card industry is becoming a regular part of consumer finance, although Tim Sloane, director of the prepaid advisory service offered by Maynard, Mass.-based Mercator Advisory Group, told the publication American Banker that the dispute shouldn’t have a direct impact on retailers, which would likely be happy to adopt a uniform $3.95 reload fee under InComm’s “Vanilla” Visa system. For retailers already carrying prepaid cards, “it would be crazy to not also be a reload location for that product,” added Sloane.

According to nFinanSe’s complaint, its cards’ low fees apparently were too competitive for InComm.

“Consumers use these reloadable debit cards as an alternative to bank accounts precisely because they want to avoid high fees,” noted Thomas S. Mulligan of New York-based strategic communications firm Sitrick & Co., which represents nFinanSe. “InComm is allegedly using its muscle to push fees upward and deny people access to the most economical cards.”

Added Mulligan: “The cards are extremely popular among grocery and convenience store retailers because they sell fast, have high margins and take up very little display space.”

Although nFinanSe claimed in its complaint that InComm threatened to stop distributing nFinanSe’s products if it went to count, nFinanSe CEO Jerry R. Welch said in the American Banker article that his company continues to use InComm as a distributor for its cards to some retailers.

After reviewing the lawsuit, InComm said it was "both surprised and disappointed" by the action, which it described as "baseless." The company added that it had never entered into an agreement to distribute nFinanSe Visa cards. InComm further noted that nFinanSe was free to participate or not participate in InComm's proposed Reload Network, which it makes available to its partners at a specific price point consistent with the general industry practice for reload packs.

The tangle with nFinanSe isn’t InComm’s first trip to court. In 2009, the company sued the Blackhawk Network in federal court, charging the Safeway division with patent infringement.