Wednesday, July 31, 2024
"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," CFPB Director Rohit Chopra said in releasing the report, Costs of electronic payments in K-12 schools.
The consumer watchdog agency examined school lunch program payment schemes at 300 of the largest public school districts in the country, covering over 16.7 million students across more than 25,000 schools.
Typically, parents fund online accounts that students use to pay for their daily lunches. And while there are no official estimates, one payment processor estimated that as many as a third of students in districts with online payment options have funds electronically loaded to their lunch accounts.
That can be a costly proposition for families, as the CFPB determined they pay on average 4.4 percent of the transaction amount every time they load funds onto their children's school lunch accounts. Families that are poor and qualify for reduced price lunch programs often pay way above the average; some are paying as much as 60 cents for every dollar spent on school lunches, according to the report.
"[E]ven the lowest transaction fees assessed by payment processors in school districts observed in the CFPB sample ($1 or 3.25 percent) are significantly higher than the payment processors' costs of processing electronic transactions," the report stated.
While fee-free options are supposed to be made available to families, the CFPB found many school districts do not make those "meaningfully" available.
More than 20 companies offer school lunch payment programs, but three dominate the business: MySchoolBucks (which is owned by Heartland Payment Systems), SchoolCafe (Cybersoft Technologies) and Linq Connect (owned by the education technology company Linq).
Using the averages revealed by its analysis, the CFPB estimated school lunch payment processors nationwide are collecting over $100 million a year in transaction fees alone.
In most instances, payment platforms are just one element of larger contracts that cover back-end school nutrition or information management services, with no upfront costs to the school districts, so there is little incentive for school administrators to haggle over the particulars of pricing for loading funds to accounts, the report suggested.
The CFPB report "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," U.S. Secretary of Education Miguel Cardona said in a statement.
The CFPB has regulatory authority over payment processors, a point the agency made in releasing its report. The analysis, it stated, "is part of the agency's broader efforts to monitor these companies and markets."
This is not the agency's first foray into the payment processing market. Earlier this year it published a report examining the video gaming marketplace, raising concerns about the existence of virtual currencies.
Back in 2022 it sued ACTIVE Network, a payment processing platform used by YMCA camps for hitting consumers with $300 million in junk membership fees. That same year it banned BrightSpeed Solutions, a Chicago-based payment processor from multiple consumer financial product markets for tricking consumers into paying for anti-virus and other unnecessary products. Recently, it began mailing out refund checks to over 122,000 consumers scammed by BrightSpeed.
And the agency proposed rules to subject big tech companies and other providers of digital wallets and payment apps to the same supervisory examination processes as banks. 
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