A New Jersey company has been hit with a class action lawsuit that claims it charges exorbitant transaction fees when it processes children’s school lunch payments.
The three named plaintiffs and the putative class are represented by Esther Berezofsky and Michael Quirk of Motley Rice, along with Wesley Griffith of Cutter Law in Sacramento, California; Shana H. Khader, Katherine Aizpuru and F. Peter Silva of Tycko & Zavar in Washington, D.C.; and Janet R. Varnell, Brian W. Warwick and Christopher J. Brochu of Varnell & Warwick in Tampa, Florida.
Defendants PAMS Lunch Room and PCS Revenue Control Systems, which does business as Pay PAMS, are among the largest operators in the nation’s school lunch payment-processing industry, according to the suit. Both operate from the same address in Englewood Cliffs, New Jersey.
The suit says the defendants are in violation of New Jersey’s Consumer Fraud Act and the state’s Truth-in-Consumer Contract Warranty and Notice Act. It seeks to represent all individuals who have used PayPAMS, and those paid the company’s fees over the past six years.
According to the suit, 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.
Districts contract with third-party payment processors with the expectation that the companies will lower school district processing costs and increase administrative efficiency, according to the complaint.
But payment processors actually increase prices to families by charging far more than their processing cost, the suit claims.
“American families’ school lunch dollars should go to paying for food—not to line PayPAMS’ pockets,” plaintiffs counsel Khader claimed in a statement. “With our clients, we are taking a stand for families across the country, and are committed to securing damages for affected families and injunctive relief to prevent further harm.”
PayPAMS’ CEO and president did not respond to messages about the suit.
The Math
Janet Varnell of Varnell & Warwick. Courtesy photo
When PayPAMS contracts with a school district, the district typically agrees to pay a set amount for its services.
For example, California’s Sweetwater Union High School District pays approximately $22,000 per year to PayPAMS to process lunch payments.
Additionally, the agreements allow PayPAMS to charge parents a per-transaction fee, which the company controls.
In practice, the defendants allegedly abuse this discretion, according to the suit.
The CFPB found that PayPAMS charged parents $1.95 to $2.40 per transaction, regardless of the amount or type of transaction. However, the cost to a payment processor for a credit, debit or prepaid card transaction is around 1.53% of the transaction, while the cost for an electronic transfer between banks using the Automated Clearing House network is between $0.26 and $0.50 per transaction.
Therefore, if a parent wants to add $25 to her child’s lunch account at a school charging $1.95 per transaction, that transaction would cost PayPAMS about $0.38. But the company nets about $1.57, the suit claims.
Some school districts using PayPAMS allegedly have even higher transaction fees.
In the Arlington Independent School District in Texas, for instance, the company’s contract allows it to charge a 5.6% fee per transaction. That would mean that on a $50 transaction, PayPAMS would charge $2.80 in fees and make $2.42, or more than seven times its costs, the suit claimed.
In Florida’s Miami-Dade County Public Schools and Oregon’s Multnomah Education Service District, PayPAMS charges per-transaction fees of $1.95.
‘Usurious Profiteering’
The suit also cited a letter to Secretary of Agriculture Thomas Vilsack by eight U.S. senators after the CFPB issued its report.
The letter called on the Department of Agriculture to prohibit such fees by school lunch payment processors.
Sens. Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio, John Fetterman of Pennsylvania, Debbie Stabenow of Michigan, Raphael Warnock of Georgia, Bob Casey of Pennsylvania, Bernie Sanders of Vermont and and Brian Schatz of Hawaii signed the Sept. 18 letter.
Their letter stated, “These fees represent usurious profiteering by payment processors and must be stopped.”