The CFPB recently released a report on payment processing companies that manage school lunch payments for school districts. The companies, the report argues, cater to a captive market and often impose transaction fees that disproportionately affect low-income families. According to the Bureau, the report is intended to assist school districts in avoiding contracts with firms that charge families allegedly excessive fees to process their school lunch payments.

The report, based on an analysis of the 300 largest public school districts, highlights several key concerns:

• Lack of Choice for Families. Contracts with payment processors are set at the school district level, leaving families without the ability to choose their payment platform. This lack of choice makes it challenging for families to avoid harmful practices and potential violations of consumer protection laws.
• Inadequate Access to Fee-Free Options. Many school districts and processors fail to adequately promote or provide fee-free payment methods, and, the available fee-free options tend to be more cumbersome than electronic alternatives.
• Financial Burden on Low-Income Families. Flat transaction fees can disproportionately impact families making frequent small payments, leading to significant costs over the school year. 
• Limited Competition Among Payment Processors. The report points out that a small number of companies dominate the market. This leads to a lack of competition and less incentive for school districts to negotiate lower fees.

Although schools participating in the National School Lunch Program are required to offer fee-free payment options, the report notes that these options are often poorly advertised or inaccessible. This lack of accessibility forces families to pay more in fees than necessary.

Putting it into Practice: The CFPB’s report aligns with broader efforts by the Bureau to crack down on practices by digital payment platforms that it deems harmful to consumers (previously discussed here, here, and here). Payment processors of school lunch programs should review the report as the Bureau’s reporting can often be a precursor to regulatory action.

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