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As kids head back to school, one of the largest payment processing companies in the world is facing new scrutiny from courts and federal regulators over how it’s cornering the school-lunch market and upcharging parents on lunch money. Here's the incredible true story of the years-long legal battle to stop the school-lunch profit mongers.
The Corporation Stealing Your Kid’s Lunch Money
By Katya Schwenk
[View in browser] Last fall, Emily Krieger, a mother in Bozeman, Montana, began to wonder about the unending fees she was paying to provide her two children lunch money at their local public school. A cafeteria lunch at Emily Dickinson Elementary School, where Krieger’s children attend, costs $2.25, plus $1 for a carton of milk. Yet last year, the cost of loading money onto students’ meal accounts — which are managed by a website called MySchoolBucks — increased to $3.25 per transaction. The fee had grown larger than the cost of an entire meal. “It caught my attention,” Krieger told The Lever. On the MySchoolBucks website, the $3.25 charge was called a “program fee.” But that money, Krieger learned, wasn’t going toward her children’s school. Instead, the fees were going to one of the largest payment processing companies in the world — one that has been fighting a years-long legal battle to protect the millions it makes upcharging parents on lunch money. Now, that operation is facing new scrutiny from the courts and federal regulators. At the same time, efforts are ramping up to provide universal free school lunches, which Minnesota adopted last year under the governorship of Democratic vice presidential candidate Tim Walz. But the school-lunch tycoons — and their powerful legal and lobbying teams — won’t be relinquishing their lunch-money millions without a fight. MySchoolBucks, a subsidiary of financial behemoth Global Payments, is the largest of three payment processors that dominate an increasingly lucrative K-12 payments market, mediating millions of dollars in payments from students and their parents for everything from school lunches to athletic events. As the company has increasingly cornered the market, it has drawn attention from consumer-rights lawyers and federal regulators — and is now at the center of a growing battle over school-lunch junk fees. “They’re making billions off a very large service fee,” Krieger said — on the backs of her own family and families around the country, as students head back to school. “It’s like, yikes, is this the best or only option? Is this what most schools are using?” The company and its competitors are raking in more than $100 million a year from fees on lunch money alone, according to a July report by the Consumer Financial Protection Bureau, a federal consumer watchdog. The fees are particularly burdensome on low-income families, who often can’t afford to load a large lump sum of money onto a student’s meal account and therefore pay more frequent flat transaction fees. Regulators found that vulnerable families may pay as much as $0.60 in fees for every $1 they spend on lunch. “They designed a system to nickel and dime hundreds of thousands of people once every other week,” said Adam Rust, the director of financial services at the consumer advocacy group Consumer Federation of America, calling the fees “a hidden cost of just living.”
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Yet while MySchoolBucks has signed more and more contracts each year, making it a central growth driver for Global Payments, challenges to its business practices are brewing. A consumer fraud lawsuit, which was brought in 2019 against the company, may soon be certified as a class-action suit, which could allow attorneys to pursue settlements on behalf of many more families, according to new court records reviewed by The Lever. The CFPB’s recent report on the market, which documented the companies’ disproportionate burden on poor families, could represent a prelude to further enforcement. Any attempts at reform, however, will come up against a company with annual revenues of more than $9 billion, and which spends hundreds of thousands of dollars a year lobbying lawmakers in Washington. “There is every incentive in the world for [Global Payments] to throw everything they’ve got at us, as long as they possibly can, until a court makes them pay back parents,” said Janet Varnell, one of the lead attorneys on the ongoing lawsuit against MySchoolBucks, and the president of Public Justice, a pro-worker and pro-consumer legal advocacy group. “This is the first case of its kind,” she added. “No one has successfully sued a K-12 payment processor company for this type of fraud.” Global Payments did not return a request for comment. Fees “Way Above Industry Standards”In 2010 and 2011, a company called Heartland Payment Systems went on a shopping spree, rapidly acquiring nascent school payments companies, including MySchoolBucks.com, a startup website that parents could use to pay for school lunches. At the time, Heartland was the fifth-largest payments processor in the country after just over a decade in business, thanks in part to an early injection of private equity cash. It saw promise in the new push for cashless school transactions, which were growing in popularity among parents. In 2016, another deal further drove school lunches into the grip of corporate America. That December, Global Payments announced a $4.3 billion deal to acquire Heartland Payment Systems, with executives promising the sale would be “transformative” for the industry. Heartland’s “school solutions” are now a prized asset for Global Payments, helping drive “double-digit growth” in one of the company’s divisions, executives told investors on an earnings call last year. The company is by far the biggest player in the market, which is largely controlled by three companies. The others are SchoolCafé, which is owned by Cybersoft Technologies, and LINQ Connect. Regulators estimate that MySchoolBucks has captured nearly 40 percent of the market, with SchoolCafé and LINQ holding 17 percent and 12 percent, respectively. MySchoolBucks also charges the highest fees. The company’s average transaction fee is $2.55, according to federal regulators, the highest on the market. But in Bozeman and elsewhere, the company is increasingly raising fees to over $3. Families have no choice but to pay up. While those fees may seem small at first glance, they add up: the Consumer Financial Protection Bureau’s conservative estimate was that families pay $42 per school year on average. For families with more children, or who add money to their accounts more frequently, that total may be far higher. And it’s worth noting that a $3.25 transaction fee on a deposit of $20 or even $50 (16 and 6 percent of the total transaction) is far higher than, say, credit or debit card transaction fees, which are usually between 1 and 2 percent of a given purchase. “[The fees] are way above industry standards,” said Varnell. “The amount they are charging to parents for school lunch is several times more than whatever they’d be charged in virtually any other part of the market.” But lured by the promise of cashless convenience for families and back-end services for administrators, schools are increasingly signing up for MySchoolBucks. The company says that more than 30,000 schools and two million families now use its technology, and Global Payments executives told investors in August that the platform had secured a contract with the Los Angeles Unified School District, which meant that “we now have partnerships with the three largest school districts in the United States.” Schools, however, may not always consider the fees that families are charged when negotiating these contracts. Indeed, the fact that the companies’ customers — school districts — are not factoring fees into their decision-making has arguably become a pillar of MySchoolBucks’ business model. Districts might choose MySchoolBucks for its point-of-sale technology for cafeterias and school stores, for instance, without considering that these programs then automatically integrate sky-high fees for families. Or districts might not realize they can push the company to lower the fees in contract negotiations.
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This arrangement has created a captive market, critics charge — one consisting of parents and families who have no choice about what payment platform their schools use. “This is an example of corporate monopoly power. They exert a certain price — really, any price that they want — and the parents are at the corporations’ mercy to pay that price,” said Christine Chen Zinner, senior policy counsel at Americans for Financial Reform, a pro-consumer advocacy group. “They have no choices.” “Stealing Their Money”This is what Varnell, the attorney, realized when years ago she was contacted by Max Story, an attorney and father in Jacksonville Beach, Florida, whose two children attended public schools in Duval County. Story, himself a consumer-protection attorney, had begun wondering where the program fees that MySchoolBucks charged him each time he put money on either of his children’s meal accounts were going. In court documents, he testified that he was led to believe that this money was going to the Duval County schools. It wasn’t. “I could immediately see that there was nothing stopping this private corporation from just raising the fees,” Varnell said. In 2019, Story filed suit against MySchoolBucks, alleging that he was misled about the destination of the fees, which he claimed amounted to consumer fraud, and that the transactions violated credit card laws. At the center of the case is alleged deception by MySchoolBucks, which attorneys claim was trying to hide the fact that its fees were going straight to its own corporate coffers. “Parents behave differently when they think that the money is going to their child’s school than when they think the largest payment processor in the world is stealing their money,” Varnell explained. Global Payments has been fighting hard to keep it that way. As Varnell and Story got to work on the case, the company began to go to extreme lengths to stop them. Shortly after the lawsuit was filed, with Story as a plaintiff, MySchoolBucks deposited $40,000 into Story’s bank account in an attempt to nullify his claim, as the company explained in court documents at the time. Story was undeterred. He refused the money and reversed the deposit, in order to keep the case in court. MySchoolBucks then rolled out a new “terms of service” agreement to all users, requiring them to waive their rights to participate in a class-action lawsuit against the company in order to continue using the platform. To avoid signing it, Story went to “tremendous lengths,” he testified in court documents, to work out an alternative way to pay for his children’s school lunch. That terms of service — which, five years later, parents are still required to sign to pay for their child’s lunches — explicitly mentions the Story v. Heartland Payment Systems case: “If you accept these terms of service… you will not [be] permitted to participate in the Story case as a class member,” it says. “They are still, to this day, saying they can enforce that,” Varnell said of the terms of service. That may soon change. At a hearing on July 17, the federal judge presiding over the proceedings told attorneys for both sides that he was leaning toward certifying the case as a class-action lawsuit — a major victory for the plaintiffs, who could then pursue claims in the case on behalf of MySchoolBucks users around the country. “My inclination is to say yes to some class certification in this case,” said U.S. District Judge Timothy Corrigan, according to a transcript of the hearing, which The Lever obtained. Corrigan emphasized, though, that he had not yet ruled on the issue. “I do think there’s been some indication in the discovery that Heartland internally knew there were some problems here.” Before moving forward, Corrigan sent both parties to settlement talks, which are expected to last the next several months. In the meantime, the lawsuit is not the only threat Global Payments is currently facing.
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Cracking DownThe first sign that regulators were considering taking on the growing K-12 payments industry emerged last fall, when the Consumer Financial Protection Bureau released a report on junk fees. In a brief section in that report, regulators noted that they had warned some unnamed K-12 payments companies of practices that “may not comply with consumer financial protection laws.” Regulators followed this notice with another report in July — the first in-depth study of the companies that make money from school lunch fees. The report found that the fees were “burdensome” and they had a disproportionate impact on low-income families. Zinner, the attorney with Americans for Financial Reform, said the report was a sign that regulators were working to hold the companies to account. “I think the [Consumer Financial Protection Bureau] has the right idea,” she said. “They’re doing everything that they can to make sure these payment processing companies are in full compliance with the law.” School lunch programs — whether students are paying full price or qualify for free or reduced-price lunches — are not supposed to charge additional fees, beyond the cost of a meal. As regulators highlighted, the U.S. Department of Agriculture, which oversees school lunch programs, has long had this as a policy: Students “shall not be charged any additional fees” for lunch. Whether the practices of MySchoolBucks and other K-12 payment companies are running afoul of this policy is a key focus of the Consumer Financial Protection Bureau report. As schools increasingly turn to digital payment options, parents might not realize they have any alternative ways to pay, even if they exist. The fees have persisted even as schools in some states have started implementing free lunches for all, as in Minnesota, which recently launched a universal free breakfast and lunch program. But the new guarantee of free lunch has not driven MySchoolBucks out of the state. Some schools still use the platform to allow students to pay for milk or additional food at lunch — preserving the platform’s fees. “Families may be paying fees for electronic payments without knowing that they are entitled to fee-free options,” regulators found, saying that it believed payment processors were violating consumer protection laws if they did not make it clear that fee-free alternatives were available to families. In Bozeman, Krieger said that she was unaware of other ways to pay for school lunch at her children’s district: “[There wasn’t] one that was obvious to me,” she said. A representative from the Bozeman School District wrote in an email to The Lever that “Parents can also send cash or check to the school for lunch deposits, and many take advantage of that option.”
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