We are starting to see the first fallout from the Consumer Financial Protection Bureau’s report this summer exploring the excessive payment fees charged by school lunch programs. A class action lawsuit claims that a New Jersey-based processor charges exorbitant transaction fees when it processes children’s school lunch payments.
The suit says that PAMS Lunch Room and PCS Revenue Control Systems, which do business as Pay PAMS, are in violation of New Jersey’s Consumer Fraud Act and the state’s Truth-in-Consumer Contract Warranty and Notice Act.
According to the CFPB, the company is the fifth-largest operator among the nation’s school lunch payment processors. PayPAMS handles the lunch fees for more than 2,500 schools in 14 districts, covering more than a million students.
The CFPB report found that the school lunch payment processing industry charges parents $100 million in “junk fees” annually. The suit claims that payment processors increase prices to families by charging far more than their processing cost claims.
“The CFPB found that, at the time it was conducting its research, PayPAMS charged consumers fees of between approximately $1.95 to $2.40 per transaction regardless of transaction amount or type,” the suit claims, “when in general, the cost to a payment processors on a credit, debit, or prepaid card transaction is around 1.53% of the transaction, and between $0.26 to $0.50 per transaction for an ACH transfer.”
Unavoidable Charges
The report from the CFPB analyzed the lunch programs at the 300 largest public school districts in America and found that payment processors charge average transaction fees of $2.37, or 4.4% of the total transaction, each time money is added to a payment account. Families making online payments every other week can end up spending as much as $42 in transaction fees during a school year.
The third-party payment processors sell their services to school districts by asserting that they can lower school district processing costs and increase administrative efficiency. But the Arlington Independent School District in Texas, for instance, allows PayPAMS to charge a 5.6% fee per transaction. On a $50 deposit into a school lunch account, that amounts to $2.80 in fees and a profit of $2.42, or more than seven times its costs, the suit claims.
The suit also claims that school districts increasingly refuse to accept cash or checks for payment of school lunches, or only accept such payments during hours that are inconvenient to working parents.
