Kirstin Downey: When the school bully is a fee processing system

I am a proud product of Hawaii’s public schools, but you don’t pass a single educational institution without painful memories.

One day at Kailua Intermediate School, three high school girls who were quite a bit taller than me tried to beat me by giving them my lunch money on the fly. Lunch money could be tight in our home, where my father was a government employee and my mother had only a part-time job, with four children and a live-in grandmother to support. So I held tight to that quarter, which is how much lunch cost back then, and held it tightly in my increasingly sweaty palm until the girls stopped hitting me and gave up, looking for an easier target elsewhere.

I still get angry when I think about bullies going after kids’ lunch money.

It turns out that the new breed of bullies are targeting children and their parents electronically, including in Hawaii’s schools.

In July, a report from the U.S. Consumer Financial Protection Bureau revealed a disturbing new way powerful forces intervened to take away some of schoolchildren’s food money. Over the past decade, school districts have increasingly turned to electronic payment systems that parents can use for things like school lunches.

It clearly makes sense: It’s easier and more efficient for parents and schools to handle payments this way, instead of kids bringing in checks or cash and harried cafeteria workers struggling to put away checks and change change.

But the CFPB also noted what federal officials saw as an alarming new trend: school administrators allowing the companies that process the payments to charge a commission on each transaction. The CFPB studied a large sample of rural school districts to find out how widespread this pattern was. They found that payment processing companies charged an average of 4.4% in fees that parents must pay.

The CFPB calculated that the costs collectively cost families nearly $100 million per year.

In Hawaii, the state allows its payment processor, EZSchoolPay, to charge parents a 2% “transaction fee” on each payment transaction, plus a 13-cent “convenience fee,” the CFPB said.

According to the CFPB, the burden falls disproportionately on parents who earn so little money that their children qualify for lower-priced lunches.

Hawaiian high school students pay $2.75 for lunch every day. Children eligible for reduced lunches – families of four earns less than $66,378 per year – pay 40 cents. Wealthier families can make larger advance payments and pay proportionately lower transaction costs. Poor families gradually have to pay smaller amounts more often, which means they have to pay more transaction costs.

To be fair, it’s not a huge amount of money, or about $10 a year for kids paying the full freight. But charging a 2% transaction fee to people who can only afford 40 cents for lunch, plus a 13-cent kicker, is a heavier burden.

About 80,000 children in Hawaii pay for school lunches every day, with 10,732 eligible for reduced-price lunches, a spokeswoman for the Hawaii Department of Education said.

Officials with the CFPB, the 13-year-old government agency that protects consumers when dealing with financial institutions, say these fees are unfair.

“While convenient for both families and school districts, electronic payment options pose new costs and challenges for the families who use them,” the CFPB concluded in its report. Parents have no choice but no pay, the agency said.

The CFPB report cited Hawaii as an example of how the system works, while also noting that government officials have recently reduced costs. In 2018, the state announced it reduced the convenience fee from 80 cents per transaction to 13 cents and had reduced transaction fees from 5% to 2%.

There are some ways to get around the fees. Parents in Hawaii have learned they can avoid transaction fees by hand-delivering checks to school administrators or mailing them with their children. But that’s such a hassle that most simply accept the fee to ensure their children are fed.

Now, good news.

The federal government is stepping in to stop this practice. Schools in Hawaii participate in the National School Lunch Program, which is administered by the U.S. Department of Agriculture.

Last week the USDA announced it would impose a ban what they called these “junk fees,” charged by payment processors to parents of children who qualify for reduced-price school meals. The agency said schools should stop charging the fees by the 2027-2028 school year.

This is part of a broader effort by the Biden administration to rein in what officials have called a slew of unfair and hidden fees being charged to consumers today. False and mandatory “processing fees” are part of a growing burden on American consumers, who are forced to pay more and more when they rent a hotel room, buy a plane ticket or go to a concert or ball game.

Hawaii Attorney General Anne Lopez, along with 18 other attorneys general, urged the FTC to continue banning such fees.

The US Federal Trade Commission, led by an activist chairwoman, Lina Khan, proposed a rule prohibit these fees. Tens of thousands of consumers have expressed their support for the proposal. Despite opposition from big business, including the American Bankers Association, the agency is pushing ahead.

Hawaii Attorney General Anne Lopez has joined 18 other attorneys general in pushing the FTC to continue banning such fees.

The multi-state effort to ban junk fees was also connected by Mana Moriarty, executive director of the Hawaii Office of Consumer Protection.

It is not surprising that these types of issues face political resistance.

Lina Khan of the FTC is herself under attack for these and other things she has done. Some of Kamala Harris’ biggest campaign donors, including Reid Hoffman from LinkedIntold Harris publicly that they wanted to remove Khan. Harris never specifically responded one way or the other.

It is not yet certain how the new Trump administration will view the issue. Pro-consumer action has not historically been associated with the Republican Party, but its traditionalist wing appears to have withered away. The ban on junk fees is popular with voters and could fit well with what Trump has presented as a more populist agenda. Vice President-elect JD Vance has publicly supported Khan. On the other hand, one of Trump’s wealthy donors, Elon Musk, tweeted that he expected Khan to be fired.

Time will tell.

I have been following the debate over junk fees with particular interest because I was previously editor of FTC:Watch, a Washington newsletter that tracks the Federal Trade Commission. I also once contributed to the history of the agency.

It all had to do with my childhood. When I went to Washington, I carried with me the strong pro-consumer orientation that was embedded in our local culture, infused with the idealistic citizenship education we received in the school system of the 1970s. Kalaheo Intermediate (now a high school), where I went after Kailua, had some smart teachers who talked to us about how things really worked and how the lessons stuck.

It’s good that the USDA is telling school districts to start eliminating these processing fees.

It seems only fair to move as soon as possible.

There’s no way to keep your quarter if a software system is the bully.