Recent reports claiming that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud trouble me greatly as the Select Subcommittee on the Coronavirus Crisis continues to look into potential waste, fraud, and abuse in the Paycheck Protection Program (PPP). Millions of dollars in PPP loans facilitated by FinTech may have been issued to fraudulent, nonexistent, or otherwise ineligible enterprises as a result of this mistake.
Bloomberg investigation shows that only 15% of PPP was processed by FinTechs, they relate to 75% of the PPP loans that the Department of Justice (DOJ) connected with fraud. A different inquiry by the unbiased Project on Government Oversight (POGO) found that nearly half of approved loans cited in criminal court documents involved seven FinTech companies and their bank partners.
The possible fraud of Paycheck Protection Program loans made possible by online lenders like BlueVine and Kabbage is the subject of an official investigation launched by Congress. The probe comes in response to articles from Bloomberg and ProPublica that examined complaints about allegedly fraudulent loans that lenders like Kabbage had granted. In letters to BlueVine and Kabbage on Friday, the Select Subcommittee on the Coronavirus Crisis of the House of Representatives announced the investigation. The committee claims in the letter, citing a Bloomberg story, that 75% of PPP loans linked to fraud through a DOJ investigation were made possible by fintech lenders. Just 15% of all PPP volumes were processed by such fintech lenders, it claimed. Recent allegations claiming that financial technology (FinTech) lenders and their bank partners failed to properly examine PPP loan applicants have severely disturbed me.
Fraud took place as FinTechs issued publicly sponsored PPP loans and earned hundreds of millions of dollars in fees. Given the speed with which the FinTech companies processed the loans—which in some cases could be approved in "as little as an hour" and the fact that the FinTech loan application process appeared to include very little scrutiny of its applicants, this analysis lends credence to reports that criminal actors sought out FinTechs for fraudulent PPP loans. According to one FinTech official, their company handled PPP loans "at a blistering rate and with less due diligence than it would ordinarily exercise if its own finances, instead of government dollars, were on the line. “This disregard for the proper use of public cash cannot continue. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, to provide relief to millions of Americans struggling due to the pandemic.Treasury and SBA were also charged with identifying suitable lenders to administer the program. On April 8, 2020, SBA began allowing non-bank and noninsured depository institution lenders, including FinTechs, to provide PPP loans to eligible recipients. In many instances, FinTechs partnered with a handful of regulated banks to process loans. FinTechs “onboard, verify and approve small businesses,” and then submit the loans to SBA via its banking partners.
The PPP loans would then be kept on the balance books of some banks while sold to FinTech companies or other third parties by others. Under the PPP, lenders that are federally regulated financial institutions must attest, under penalty of criminal prosecution, that they have complied with the Bank Secrecy Act's anti-money laundering requirements; PPP lenders that are not federally regulated financial institutions must attest that they have complied with the requirements that would apply to an equivalent regulated institution. However, it has been claimed that many FinTechs lacked the compliance management processes required to meet these criteria. One FinTech lender associated with multiple prosecutions of PPP fraud boasted that “over 75% of all approved applications, and more than 90% of self-employed applications, were processed without human intervention. Individuals involved in the manual reviews of potentially fraudulent applications at FinTechs have described the process as “perfunctory.” This lack of rigor was reflected in their failures to deny applications showing clear markers of fraud. Rather than something to boast of, the rates of fraud associated with these loans strongly suggest that FinTech companies’ loan screening processes were woefully inadequate.
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