WASHINGTON— The Consumer Financial Protection Bureau (CFPB) has a new target in its sights when it comes to junk fees: the lunch lady. Or rather, the payment processing companies that help school districts process children’s school lunch payments.
“These private companies process payments made by parents who may have limited or zero payment alternatives,” the Bureau said in releasing its new report. “With a captive customer base, these companies can have broad control over fees assessed for each transaction. These fees are widespread and often hit low-income families the hardest. Overall, parents and caregivers have no control over fee rates and lack opportunities to shop around for cheaper options.”
Analysis of 300 Districts
According to the CFPB, its new report is based on an analysis of the 300 largest public school districts in the country, where there is a growing use of digital payment options.
The CFPB said the report highlights average costs and potential risks for families using electronic payment platforms to add money to their children’s school lunch accounts.
“More generally, the report also reviews the market size and landscape of school lunch payment processing companies, and it builds upon initial observations referenced in the Fall 2023 edition of Supervisory Highlights,” the CFPB said.
The Big Three
While more than 20 unique companies offer these services to school districts nationwide, the vast majority of enrolled students are served by just three market leaders, according to the CFPB.
“These processors typically charge fees to add money to a student’s school lunch account, which collectively can cost families upwards of $100 million each year,” the Bureau said.
Among the companies it studied, the CFPB said it observed that the payment processors charge transaction fees of $2.37, or 4.4%, of the total transaction, on average, each time money is added into a payment account.
Additional Concerns
The CFPB said its new spotlight highlights some risks and concerns about this school fee arrangement, including:
- Parents and caregivers cannot choose their payment platform. “Because contracts are determined at a school-district level, families have no choice over which company they must use to add funds into online student lunch accounts. As a result, it may be especially difficult for families to avoid harmful practices, including those that may violate federal consumer protection law.”
- Fee-free options may not be meaningfully available to all families. “Both school districts and processors frequently fail to post the availability of free payment methods, and further, free options may be more burdensome than electronic options.”
- Fees add up for families with lower incomes. “Processing fees often include flat fees that are charged per transaction. This means fees may disproportionately burden lower-income families making frequent small payments as compared to families who can afford to load a substantial amount into their child’s lunch account at one time. Over the course of a school year, families with children eligible for means-tested reduced price lunch programs may send $0.60 to payment processors for each $1 they spend, or roughly $42 annually, on school lunches.”
- Payment processors face little competition. “In many cases, complex payment processor company structures and contracts appear to insulate companies from competition and make school districts less likely to negotiate fees for these services. For school districts considering contracts, payment platforms may be just one element of a larger contract for back-end school nutrition or information management services.”
‘Not Always Accessible’
The CFPB noted school food authorities participating in the National School Lunch Program are required to provide fee-free avenues to pay for school lunch, but these fee-free options are not always well advertised or accessible.
“Despite this requirement, families may be paying more in fees than they would choose to if they had access to comparable alternative payment options with lower or no fees,” the CFPB said.
The report can be found here: Issue Spotlight: Electronic Payments in K-12 Schools.