NFinanSe Inc. is suing InComm Inc. in federal court for allegedly attempting to fix the price of reloading prepaid cards and violating its distribution agreement.
The Tampa prepaid card marketer said InComm, which also markets its own gift and prepaid cards, tried to rope nFinanSe into an agreement that would require card issuers to set reload fees at a uniform $3.95 under its "Vanilla" Visa system.
When nFinanSe declined to raise its reload fee, its complaint alleges, InComm retaliated by breaking a bargain to distribute nFinanSe cards to certain retailers. NFinanSe, which relies heavily on distributors to bring its cards to market, offers prepaid cards that operate on the networks of Visa Inc., American Express Co. and Discover Financial Services.
"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," says the lawsuit, filed at the end of last month in the United States District Court for the Northern District of Georgia.
Many of the allegations that nFinanSe makes in the case are based on oral conversations its executives had with InComm officials. But one of the exhibits in the complaint is an agreement that InComm asked nFinanSe to sign, says nFinanSe's attorney, H. Lamar Mixson of Bondurant Mixson & Elmore LLP in Atlanta.
The agreement said: "We must raise our reload price to their levels," according to Mixson.
"It's a situation where InComm is a direct competitor," he said. "It's sort of an extraordinary situation."
NFinanSe alleges in its lawsuit that during the March 2011 Prepaid and Financial Services Forum in Orlando, InComm "presented to a select group of retailers its plan to require a uniform reload price."
NFinanSe originally signed its distribution agreement with InComm, of Atlanta, in 2007.
The allegations come at a time when the prepaid card industry is growing into a mainstream component of consumer finance. The suit "shows that InComm was striving to get its issuers and retailers to sign up, maybe a bit overzealously," says Tim Sloane, director of Mercator Advisory Group's prepaid advisory service.
A factor behind the dispute might be an attempt by InComm to get its own prepaid card into discount stores where nFinanSe already maintains relationships, he speculated. One of the nFinanSe's biggest retailers is Dollar General.
The feud should not have a direct impact on retailers, who would likely be happy to adopt the Vanilla Visa reload system, Sloane says.
For retailers already carrying prepaid cards, "it would be crazy to not also be a reload location for that product," he says. "For those retailers, I can't imagine they'd care about this conflict with nFinanSe."
This is at least the second lawsuit InComm has been a party to in recent years. In 2009, InComm sued the Blackhawk Network in federal court, charging Blackhawk with patent infringement.
While nFinanSe alleges that InComm threatened to stop distributing nFinanSe's products if it filed suit, Jerry R. Welch, nFinanSe's chief executive, says that his company still uses InComm as a distributor for its cards to certain stores.
"Our business continues to operate today as it did before we filed the lawsuit," he says.
Welch said he could not comment directly on the lawsuit. InComm would not discuss the matter.