PayPAMS Lawsuit Alleges Processor Charges Illegal ‘Junk Fees’ on School Meal Payments

New to ClassAction.org? Read our Newswire Disclaimer

The companies behind PayPAMS face a proposed class action lawsuit that accuses the payment processor of charging unlawful “junk fees” when parents or students pay for school meals.

Get the latest open class action lawsuits sent to your inbox. Sign up for ClassAction.org’s free weekly newsletter.

The 29-page lawsuit explains that PayPAMS—operated by defendants PAMS Lunch Room LLC and PCS Revenue Control Systems, Inc.—provides school districts with an online platform where parents can prepay for their children’s school meals and other expenses. However, the case contends that the payment processor, which services more than 1,500 schools nationwide, tacks on illegal “service” or “convenience” fees each time a parent loads funds into their child’s account.

According to the class action suit, the contractual agreement a parent enters into when creating an account only authorizes PayPAMS to charge for the “actual costs” of service, which, per the complaint, are “well below” the amount assessed to process each transaction. The filing alleges that the defendants have misrepresented the nature and purpose of the fees, rendering them illegal under New Jersey law.

In addition, the lawsuit against PayPAMS claims the transaction fees contravene guidance issued by the United States Department of Agriculture, which stipulates that children participating in school nutrition programs cannot be charged any added fees for services in connection with the delivery of school lunch benefits.

A report published by the Consumer Financial Protection Bureau (CFPB) in July 2024 shared that such junk fees disproportionately harm low-income families and those eligible for free and reduced lunches. Per the CFPB study, as much as $0.60 of every dollar a low-income family spends on school lunches goes to payment processors via transaction fees.

The CFPB found that PayPAMS, at the time of the study, charged between roughly $1.95 and $2.40 per transaction, when the cost to process a credit or debit card transaction was around 1.53 percent of the transaction, or between $0.26 and $0.50 for an ACH transfer.

“In concrete terms, this means that if a low-income single parent wanted to add $25 to her child’s lunch account at a $1.95-per-transaction-school, that the transaction would cost PayPAMS about $0.38 cents but would net PayPAMS about $1.57 on top of its costs on the transaction or a profit rate of over five times the cost of the transfer,” the suit relays.

The CFPB reported that payment processors such as PayPAMS may charge consumers up to nine times more than what it costs to process each transaction, collecting a “staggering” $100 million each year from families across the country.

The case points out that PayPAMS reaps these profits on top of what school districts already pay for its services, allowing it to “double dip” by charging families as well as clients.

The lawsuit looks to represent anyone who paid a transaction-related fee to PayPAMS within the past six years.

Check out ClassAction.org’s lawsuit list for current class action lawsuits and investigations.