Electronic welfare fuels legal warfare Bank sues provider of transfer services

February 09, 1993|By Thomas W. Waldron and Laura Lippman | Thomas W. Waldron and Laura Lippman,Staff Writers

A Memphis-based bank is suing the company that set up Maryland's system for distributing welfare benefits electronically, charging the firm monopolized the growing market for noncash purchases of groceries.

In a suit filed yesterday in U.S. District Court in Baltimore, EFS National Bank charges that Deluxe Data Systems Inc. violated federal antitrust laws by using its position as the provider of electronic transfer services for welfare recipients to keep competitors out of nonwelfare transactions.

Grocery stores are the last major outlets that generally do not accept credit cards or bank cards.

With each state under a federal mandate to create an electronic benefit system for welfare recipients, groceries will quickly begin accepting electronic payments and such disputes over access to customers' transactions could become common, said lawyers involved in the suit.

"In the state of Maryland, because of the acts which are alleged in the lawsuit, we have been virtually shut out of the market," said Lloyd Constantine, a New York-based lawyer representing EFS.

"Just as anybody that provides these services has been shut out of the market."

Under a $37 million contract with the state Department of Human Resources, Deluxe has installed computers in some 3,000 stores around the state, making Maryland the first state to have such thorough coverage.

The company also established bank accounts for more than 180,000 recipients of welfare and food stamps and provided them with Independence cards, similar to bank-machine cards.

While Deluxe provided the hardware, stores are free to contract with other companies -- such as EFS -- to transfer cash electronically.

But, the suit contends, stores hooked up to the welfare system with Deluxe's machines tend to use Deluxe's transfer services.

Giant Food, for example, last fall began accepting all forms of "plastic," Giant officials said, because they were to piggyback on the welfare-transfer technology provided by Deluxe without major expense.

Now other stores, which sell things such as clothing and shoes, have asked DHR for terminals to lure customers.

No official from Deluxe, based in New Berlin, Wis., was available to comment on the lawsuit yesterday, officials there said.

The suit seeks unspecified damages that would be trebled under federal laws.

EFS is also seeking to force Deluxe to provide electronic specifications that would allow EFS to "interface" with machines installed in stores by Deluxe.

DHR is named in the suit as a co-conspirator -- although not as a defendant -- for allowing Deluxe to fend off efforts from EFS to provide services to some stores.

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