Fintech: Fraudsters Use Fintechs To Milk The PPP Loan Program

October 8, 2020 | FinTech, News
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Fintechs fulfilled the need to get the money out quickly. Some bad actors took advantage of this.

After the virus pandemic broke, small businesses were desperate to get their hand on the forgivable loans offered under the Paycheck Protection Program (PPP) administered by the Small Business Administration. As banks lumbered along with disbursements, often described as slow and cumbersome, the SBA roped in fintech companies to speed up payments. However, it appears that some checks and balances failed, because nearly three-quarters of the loans found fraudulent by the U.S. Deptt of Justice were processed by fintechs. (Bloomberg | Quint)

Dubious businesses approved

Fintechs and associated lenders such as Kabbage, BlueVine Capital, Cross River Bank, Celtic Bank, and Ready Capital Corp arranged nearly 15% of the overall PPP lending.

These lenders were authorised to approve the loans on the basis of self-certifications by applicants attesting that they were eligible for the loans.

A borrower in hot water with the DOJ allegedly received approval for a $3 million loan from Ready Corp even though the business had no web presence or social media and was registered at a residential address. (The disbursement of this loan was stopped in time)

In another case, a borrower was able to draw $2 million from the Program even though the businesses were afoul of the secretary of state.

Speed the need of the hour

Note that the fintechs are not in the dock.

Fintechs Kabbage and BlueVine claimed they took appropriate steps to examine the applications. Kabbage also went so far as to say that its rigorous verification checks surpassed the standards issued by the SBA. According to BlueVine, it conducted advanced fraud prevention techniques.

Ready Capital says it “implemented due diligence measures and complied with SBA directives to expeditiously provide relief to small businesses.”

The DOJ has alleged that about $175 million of PPP loans are fraudulent. In all fairness, that’s a miniscule proportion of the overall $525 billion PPP disbursement.

However, about $20 billion of the larger loans (above $150,000) “raise some red flags,” according to PayNet.

PayNet is a unit of Equifax Inc. (NYSE: EFX) that helps lenders assess the quality of business loans.

According to Bill Phelan, senior vice president at PayNet, the fraud checks were really not done before the PPP money went out the fintech door.

The urgency was to get it to businesses as quickly as possible and help them survive.

Related Story:  The PPP Loan Program Helps Kabbage Bounce Back

Image Credit: Flickr                                                  

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