Debit Card Firm Sues Sallie Mae for $90 Million
MANHATTAN (CN) - In a $90 million lawsuit, a debit card company accuses Sallie Mae, the largest provider of college financial services in the country, of "using and abusing" it, then "brazenly disavowing its contractual obligations" and dumping it.
Green Dot Corp. sued Sallie Mae Inc. in New York County Supreme Court.
Sallie Mae (SLM Corp.), originally known as the Student Loan Marketing Association, is a publicly traded corporation that originates, services and collects student loans.
Green Dot describes itself in the lawsuit as "a leading financial services company providing low-cost and convenient money management solutions, including general purpose reloadable ('GPR') prepaid debit cards".
It claims it entered discussions with Sallie Mae in late 2011 to provide refund disbursement services to Sallie Mae's higher education clients "as part of Sallie Mae's Campus Solutions business using Green Dot's low-cost, consumer-friendly reloadable prepaid cards."
However, Green Dot says in the lawsuit, "Sallie Mae demanded exclusivity, forcing Green Dot to abandon virtually all of its other efforts to enter the higher education market. Sallie Mae expressed particular concern about Green Dot doing business with Higher One Holdings, Inc. ('Higher One'), another major financial services provider to the higher education industry. Sallie Mae also demanded that Green Dot pay for most costs of the joint initiative (the 'Program'). During the course of negotiations over the agreement, and in order to convince Green Dot to agree to exclusivity and make the significant case investment in the Program, Sallie Mae provided Green Dot with 4-year forecasts reflecting that the Program would be so lucrative for both parties that it would be will worth Green Dot's upfront sacrifices.
"Unbeknownst to Green Dot, however, Sallie Mae's Campus Solutions business was steadily losing money. Upon information and belief, even before the agreement was signed, Sallie Mae was looking to shed this business, and used Green Dot to enhance the value of the otherwise money-losing asset so that it would be better positioned for sale. "Thus, Sallie Mae targeted Green Dot as a contractual partner to bundle its struggling business with Green Dot's commercially attractive, well-known prepaid cards."
Green Dot claims Sallie Mae rushed it to build the prepaid card program as quickly as possible, then when it was ready, "inexplicably delayed the launch, falsely telling its college and university clients that additional testing was needed."
Sallie Mae then "blindsided" Green Dot by telling it that Sallie Mae's Campus Solutions was for sale, and would be sold to Higher One.
"As a result of Sallie Mae's breach of contract, Green Dot has realized none of the more than $130 million in net profits it would have earned based on reasonable financial and economic assumptions applied to Sallie Mae's own revenue projections," the lawsuit states.
"Green Dot also spent (and therefore wasted) substantial money to develop the program and was unable to pursue other opportunities because of the exclusivity obligation and because it was prioritizing the program over other potential business expansions and diversifications both within and outside of the higher education market."
To sum it up, Green Dot says: "This is a case about the largest provider of financial services to the higher education industry in the United States using and abusing a business partner for its own collateral goals, casting that business partner aside and brazenly disavowing its contractual obligations when those goals were realized. In hindsight, Green Doe believes that, from the start, Sallie Mae through its Campus Solutions business division had no intention of living up to its binding commitments to Green Dot, and was more interested in building up the value of Campus Solutions, a money-losing division, for an intended sale than launching the money-saving product that it contracted with Green Dot to provide to financially sensitive college and university financial aid recipients."
Sallie Mae managed to sell Campus Solutions for $50 million, though it was losing $10 million a year, Green Dot says.
It seeks $90 million in damages for breach of contract.
It is represented by Steven Kayman with Proskauer Rose.