CFPB Finds Junk Fees on the Menu of School Lunch Programs

Junk fees are taking a toll on lower-income parents trying to pay for school lunches.

So says the Consumer Financial Protection Bureau (CFPB), which released a report Thursday (July 25) on the payment processing companies that help school districts process students’ school lunch payments.

“These private companies process payments made by parents who may have limited or zero payment alternatives,” the CFPB said in a news release. “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.”

The report, which analyzed the 300 largest public school districts in the country, found that while there are more than 20 payment companies serving schools, most students are served by just three market leaders, with parents getting no choice in which company they use.

“As a result, it may be especially difficult for families to avoid harmful practices, including those that may violate federal consumer protection law,” the CFPB said.

In addition, both school districts and processors routinely fail to tell parents about the availability of free payment methods. And fees can add up, as 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,” the bureau said.

The report came the same day as new GDP data from the Bureau of Economic Analysis, showing a slowdown in disposable income growth.

“The GDP data lends further indication of the pressures that have been showing up in various earnings reports these past few weeks — and, particularly, among lower income, lower credit-scoring consumer brackets,” PYMNTS wrote.

“As has been seen from reports from the banks, such as JPMorgan and Citigroup, and more recently from Visa, there’s been some pullback in those consumer groups, and overall payments-related activity has been moderating.”

Heading into this year, research by PYMNTS Intelligence showed that consumers were depleting their savings roughly every four years. It’s a trend driven by inflation, leading consumers to dig into their rainy day funds to meet the demands of everyday life.