On July 25, the Consumer Financial Protection Bureau (CFPB or Bureau) released an Issue Spotlight focusing on the fees associated with electronic payment platforms used by school districts to process school lunch payments. In its report, the CFPB emphasized the costs of electronic payments in K-12 schools and the potential financial strain these fees could place on lower income families.

According to the report, as of fall 2023, over 52 million students were enrolled in public schools in the United States. With the increasing shift towards digital payment options, many school districts have contracted with payment processing companies to facilitate online payments for school-related expenses, including school lunches. For its report, the CFPB analyzed information from the 300 largest public school districts in the U.S. to better understand the emergence of electronic payment processors. The spotlight focuses on the average costs for families using electronic payment platforms to add money to their child’s school lunch account.

Key findings in the Issue Spotlight include:

• Prevalence of Fees: The CFPB’s analysis revealed that many school lunch payment processors charge transaction fees each time money is added to a student’s account. These fees can collectively cost families upwards of $100 million annually. The average transaction fee reported was $2.37 or 4.4% of the total transaction amount each time money was added into a payment account.
• Disproportionate Impact on Low-Income Families: Processing fees often include flat fees charged per transaction. So, fees may disproportionately burden lower-income families making frequent small payments as compared to families who can add a substantial amount to their child’s account at one time. Families eligible for reduced-price lunch programs may incur fees amounting to $0.60 for every $1 spent on school lunch. Over a school year, these fees can add up to $42.
• Lack of Meaningfully Available Fee-Free Options: Although federal policy requires schools to provide fee-free payment options, these options are often not well advertised or accessible, and may be more burdensome to utilize. Many families are unaware of their entitlement to fee-free methods, leading them to incur unnecessary fees.
• Limited Competition and Choice: The market for school lunch payment processors is dominated by a few companies. According to the Bureau, families have no choice over which payment platform they can use, as the processing contracts are determined at the school-district level. This lack of competition can result in higher fees and fewer incentives for payment processors to improve their services, and in families being left vulnerable to any harmful or violative practices engaged in by such payment processor.
• Administrative Challenges: Families often face difficulties in canceling automatic payments and accessing timely refunds for unspent funds. These challenges can lead to additional administrative burdens for school district staff and delays in refund processing. Such issues may disincentivize families from adding larger amounts to their accounts, which may lead to their incurring additional per-transaction fees than may otherwise have been the case.

As a result of these findings, the Bureau recommends that school districts actively negotiate with payment processors to secure lower transaction fees for families; ensure that fee-free payment methods are well advertised and easily accessible to all families; and encourage competition among payment processors that could lead to better services and lower fees for families. Payment processors must ensure compliance with the card network rules as well as state laws surrounding convenience fees and surcharges, as applicable.