According to a congressional investigation, shadowy financial technology firms “with little to no monitoring from lenders” have driven pervasive Paycheck Protection Program fraud. The analysis anticipates a total fraud of around $64 billion, with fintechs playing a significant role.
A House Select Subcommittee on the Coronavirus Crisis inquiry discovered that little-known financial technology businesses, popularly known as “fintechs,” have received “billions in fees while being easy targets for anyone who wished to defraud the PPP.”
The Select Subcommittee started looking into the matter after hearing that “fintechs that were participating in the PPP authorized a large proportion of bogus PPP loan applications.”
The PPP, which was approved by Congress in the spring of 2020, provided extraordinary assistance to small company owners in order to help them sustain operations and retain personnel during the Chinese coronavirus pandemic.
However, barely three years after the PPP was implemented, it is apparent that small company owners were not the only ones who benefited from this program.
According to the Senate study, “tens of billions of dollars in PPP loans were likely transferred to fraudulent or ineligible applicants, sometimes with the cooperation of fintechs, inflicting great harm to taxpayers.”
“Fintechs were given exceptional responsibility in running the nation’s greatest pandemic relief program — a duty that some of the fintechs that enabled the highest quantities of loans were either unwilling or unable to meet,” according to the study.
“Many of these organizations appear to have failed to detect clear and preventable fraud, resulting in the unnecessary waste of public cash,” according to the committee investigation.
Kabbage, a fintech, had furloughed half of its staff who were in charge of risk assessment and account monitoring. Kabbage continued to fund PPP loans by hiring “temporary contractors,” according to the study.
“Despite the possibility of fraud,” the audit stated, “Kabbage implemented employment cutbacks during 2020 that likely reduced its capacity to combat fraud. Kabbage laid off staff in March of 2020, anticipating a drop in revenue during the pandemic, but participating in the program ‘saved’ the ailing fintech.”
“After Kabbage was acquired by American Express in Oct. 2020, PPP consumers were left at the mercy of an understaffed and underfunded spin-off firm that failed to adequately service their loans and eventually filed for bankruptcy,” according to the study.
Another fintech, Womply, has fraud prevention methods that loan partners described as “stitched together with duct gum and duct tape.”
Blueacorn, a third fintech that got more than $1 billion in government funds through PPP processing fees, provided little to no loan underwriting training to its staff. They weren’t even taught how to recognize a forged driver’s license.
Loan reviewers who worked for Blueacorn testified before the Select Subcommittee and stated they were given inadequate training and were urged to “push through” all PPP loans even if they had doubts about the loan’s supporting documents.
According to a former Blueacorn loan reviewer, the firm’s reviewers were “sending PPP loans to the SBA on the first minute of the first day” of their job, despite having “no informal or formal loan underwriting training.”
Furthermore, the ex-Blueacorn loan reviewer stated that these reviewers had “no instruction on how to correctly recognize and report fraudulent official identity such as a driver’s license.”
According to the committee investigation, the reviewers were reportedly informed that “the faster the better” and that loan application assessments “should take you under 30 seconds.”