CFPB Report Highlights Junk Fees Charged by School Lunch Payment Platforms

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today released a report on 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. 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.

“Transaction fees and other types of junk fees can take an economic toll on American families just trying to pay for basic school expenses, including school lunch for kids,” said CFPB Director Rohit Chopra. “Today’s report will help school districts avoid contracts with financial firms that harvest excessive fees from families who purchase school lunch.”

“USDA and schools across America share the common goal of nourishing the 30 million children that depend on school meals as a vital source of nutrition, and we’re committed to working together to make sure nothing gets in the way of that,” said Agriculture Secretary Tom Vilsack. “As part of this commitment, USDA will review its policies and work with schools, state oversight agencies and the payment processors to ensure that all families have a clear and readily-available fee-free payment method. The Biden-Harris Administration will continue to take action to lower costs for families, including by cracking down on junk fees that are raising meal costs for families as part of our work to ensure all children get healthy school meals.”

“Students do best in school when they have access to nutritious school meals, transportation, high-quality after-school programs, and technology and materials to help them learn. We should encourage the use of tools that can make these things more accessible and affordable for all students. This CFPB analysis of the 300 largest public school districts makes clear that as the growing use of digital payment options expands to our schools, we must take care to meet schools and families where they are—examining benefits as well as pitfalls, listening to community concerns, and implementing guardrails where necessary,” said U.S. Secretary of Education Miguel Cardona. "Above all, actions around digital payment options must keep students at the center, recognizing that no student can learn if they are hungry and lack the tools they need.”

Today’s 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.

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. 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. Among the companies it studied, the CFPB 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. The 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.

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 has the authority to conduct supervisory examinations of payment processors, and today’s report is part of the agency’s broader efforts to monitor these companies and markets. The CFPB has also published a report looking at video gaming marketplaces – including gaming companies’ use of proprietary payment processing services. The CFPB has proposed a rule to subject Big Tech companies and other providers of digital wallets and payment apps to the same supervisory exam process as banks. In 2022, the CFPB sued ACTIVE Network, a payment processing platform used by YMCA camps, for illegally cramming consumers with more than $300 million in junk membership fees. Also, in 2022, the CFPB banned the payment processor BrightSpeed from multiple consumer financial products and services industries for helping companies profit from fraudulent services and products.

Read the report, Issue Spotlight: Electronic Payments in K-12 Schools.

Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

Employees of companies who believe their company has violated federal consumer financial laws are encouraged to send information about what they know to whistleblower@cfpb.gov.