Electronic payment processing offers speed and convenience in many daily transactions, but that expediency often comes with a price.  In a report issued July 25, 2024, the CFPB highlighted in a new report the consequences of that convenience with respect to school lunches and found that, among other things, fees charged for such transactions may disproportionately affect lower-income families.

Partly due to the COVID-19 pandemic, K-12 school districts have increasingly shifted to electronic payment processing for school-related expenses including meals, after-school programs, and educational materials.  Following an analysis of the 300 largest public school districts in the United States, the CFPB found payment processed levied fees of 4.4% on average every time a family added money to a school lunch account, and that “payment processors have maintained payment platforms on which consumers may have paid fees that they would not have paid had the consumers understood that they were entitled to free options.”  The CFPB also noted a stark contrast between families paying full price for meals and those eligible for reduced-priced meals.  According to the CFPB report, the former group spent an average of 8 cents in fees per every dollar spent, and the latter paid 60 cents in fees per dollar spent – a discrepancy created by charging flat fees for each transaction which advantages families who can load more money into student accounts in one transaction rather than in smaller, more frequent (i.e., paycheck to paycheck) transactions.  

According to the CFPB report, a lack of competition helped drive the disproportionate fees, as only three out of the more than 20 companies offering payment processing services to schools served 67 percent of the students in the report’s sample, with families having no choice as to which processor to use.  Perhaps due to this concentration, the CFPB found that “even the lowest transaction fees assessed by payment processors in school districts observed . . . are significantly higher than the payment processors’ costs of processing electronic transactions.”  Unfortunately, the Bureau determined that while school districts may negotiate fees when contracting with payment platforms, the platforms appear to have broad control over fees charged and few districts have been successful in lowering fees for families.

In addition to transaction fees, the CFPB also found that the use of electronic payment processing imposed costs such as new account fees, convenience fees for transferring money between student accounts within the same family, and maximum deposit limits that necessitate multiple transactions and thus, additional fees.  Likewise, where families have difficulty canceling or forget to turn off automatic payment or year-end roll-over options, they are “instructed to go directly to their child’s school for refunds, so any extra funds paid into a student’s school lunch account create additional administrative tasks for school district staff and may further delay when a refund is ultimately received,” and “in some school districts, the refund process can be complicated, requiring additional paperwork for families, and may take weeks for the money to be returned.” 

This latest report continues a trend of the CFPB finding electronic payment options imposing disproportionate burdens on specific population groups – last year, the CFPB reported, among other things, that consumers with lower credit scores pay up to four times more in credit card late fees and interest payments than those with higher credit scores, and that servicemembers are significantly more likely to experience fraudulent activity on online payment apps due to scams related to their military benefits.