July 26: CFPB Recent Updates
PUBLISHED
CFPB Report Highlights Junk Fees Charged by School Lunch Payment Platforms
The Consumer Financial Protection Bureau (CFPB) today released a report on payment processing companies that help school districts process children’s school lunch payments. These private companies process payments made by parents who may have limited or zero payment alternatives. 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. Overall, parents and caregivers have no control over fee rates and lack opportunities to shop around for cheaper options.
Today’s report highlights average costs and potential risks for families using electronic payment platforms to add money to their children’s school lunch accounts. More generally, the report also reviews the market size and landscape of school lunch payment processing companies, and it builds upon initial observations referenced in the Fall 2023 edition of Supervisory Highlights.
While more than 20 unique companies offer these services to school districts nationwide, the vast majority of enrolled students are served by just three market leaders. These processors typically charge fees to add money to a student’s school lunch account, which collectively can cost families upwards of $100 million each year. Among the companies it studied, the CFPB observed that the payment processors charge transaction fees of $2.37, or 4.4%, of the total transaction, on average, each time money is added into a payment account. The spotlight highlights some risks and concerns about this school fee arrangement, including:
- Parents and caregivers cannot choose their payment platform: Because contracts are determined at a school-district level, families have no choice over which company they must use to add funds into online student lunch accounts. As a result, it may be especially difficult for families to avoid harmful practices, including those that may violate federal consumer protection law.
- Fee-free options may not be meaningfully available to all families: Both school districts and processors frequently fail to post the availability of free payment methods, and further, free options may be more burdensome than electronic options.
- Fees add up for families with lower incomes: 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. Over the course of a school year, families with children eligible for means-tested reduced price lunch programs may send $0.60 to payment processors for each $1 they spend, or roughly $42 annually, on school lunches.
- Payment processors face little competition: In many cases, complex payment processor company structures and contracts appear to insulate companies from competition and make school districts less likely to negotiate fees for these services. For school districts considering contracts, payment platforms may be just one element of a larger contract for back-end school nutrition or information management services.
School food authorities participating in the National School Lunch Program are required to provide fee-free avenues to pay for school lunch, but these fee-free options are not always well advertised or accessible. Despite this requirement, families may be paying more in fees than they would choose to if they had access to comparable alternative payment options with lower or no fees.
CFPB Warns Against Intimidation of Whistleblowers
The Consumer Financial Protection Bureau (CFPB) today issued a circular to law enforcement agencies and regulators explaining how companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing. The circular explains how imposing sweeping nondisclosure agreements that do not clearly permit communication with law enforcement may intimidate employees from disclosing misconduct or cooperating with investigations. This could impede investigations and potentially violate federal whistleblower protections.
Whistleblowing plays an important role in addressing illegal and unethical misconduct. In the Consumer Financial Protection Act (CFPA), Congress included a provision specifically protecting whistleblowers from retaliation for reporting violations of consumer financial protection laws. Although nondisclosure agreements can be entered into for legitimate purposes, such as ensuring the protection of confidential trade secrets, such agreements, depending on how they are worded and the context, could lead employees to believe they would face lawsuits or other retaliation for reporting suspected misconduct to governmental authorities.
Today’s circular explains that financial institutions may violate the CFPA when they require employees in certain circumstances to sign broad nondisclosure agreements, or other types of agreements that contain confidentiality requirements, if the agreements do not clearly permit communications or cooperation with law enforcement. Confidentiality agreements often specify that the employer may file a lawsuit or terminate an employee for violating the terms of the agreement.
The circular highlights particularly egregious circumstances that would typically violate the law. One example is when an employer demands a confidentiality agreement during an internal investigation, warning employees not to discuss the relevant matters with any external parties and saying they may be subject to legal penalties for doing so. If an employee involved in or aware of an investigation must sign such an agreement, they may see it as a threat against whistleblowing. An employer can significantly reduce the risk of violating whistleblower protections by ensuring that its agreements expressly permit employees to communicate freely with government enforcement agencies and to cooperate in government investigations.
The CFPB’s action today builds on prior efforts to affirm whistleblower protections and collect reports of misconduct. For example, the CFPB previously streamlined how workers in the technology industry can submit tips about potential violations of federal consumer financial laws. The CFPB’s work also aligns with a broader federal effort to protect whistleblowers and ensure corporate accountability. For example, the Securities and Exchange Commission has pursued enforcement actions against companies that violated its whistleblower protection rules when those companies required their employees or clients to sign overly restrictive confidentiality agreements.