Select Subcommittee Launches Investigation into Role of FinTech Industry in PPP Fraud
May 28, 2021
Washington, D.C. (May 28, 2021) — Yesterday, Rep. James E. Clyburn, Chairman of the Select Subcommittee on the Coronavirus Crisis, sent letters to four financial technology (FinTech) firms and partner banks seeking documents and information related to their handling of Paycheck Protection Program (PPP) loans. The requests follow reports that FinTech companies and bank partners have been linked to a disproportionate number of fraudulent PPP loans.
“I am deeply troubled by recent reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud,” wrote Chairman Clyburn. “This failure may have led to millions of dollars in FinTech-facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses.”
The letters were sent to companies that have been linked to high numbers of fraudulent loan prosecutions and whose due diligence and fraud detection practices have been publicly called into question:
- Kabbage, Inc., a FinTech company that has processed over $7 billion in PPP loans to at least 300,000 businesses, and accounted for 20 percent of all suspicious PPP loans reviewed in one analysis, in addition to sending at least 378 PPP loans worth $7 million to likely non-existent farms.
- BlueVine, a FinTech company that provided over $4.5 billion in PPP loans to at least 155,000 businesses and is among a group of FinTechs assessed to have facilitated 75 percent of the approved PPP loans implicated in Department of Justice (DOJ) fraud prosecutions, according to one analysis.
- Cross River Bank, a bank that approved over 280,000 PPP loans worth over $6.5 billion, and was reportedly involved in over 30 percent of the approved loans issued by FinTechs or their bank partners that were subject to DOJ prosecutions.
- Celtic Bank, a bank that funded nearly 100,000 in PPP loans, totaling over $2.5 billion, and was reportedly involved in nearly 30 percent of approved loans issued by FinTechs or their bank partners that were subject to DOJ prosecutions.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act establishing the PPP to help small businesses and non-profit organizations survive the coronavirus crisis by providing forgivable loans to cover payroll, rent, and utility payments. After facing unprecedented numbers of PPP applications from small businesses impacted by the coronavirus pandemic, the Small Business Administration (SBA) began allowing non-bank and non-insured depository institution lenders, including FinTechs, to provide loans to eligible recipients.
However, the participation of FinTechs in the PPP may have led to increased incidents of fraud. Recent reports have found that FinTechs and their bank partners handled 75 percent of the approved PPP loans that have been connected to fraud by DOJ, despite facilitating just 15 percent of PPP loans overall. An increasing number of fraud schemes have come to light involving loans issued through FinTechs, raising questions about whether FinTechs and their bank partners have adequately screened PPP loan applications for fraud. This potential failure of due diligence came even as these same FinTechs were paid hundreds of millions of dollars in taxpayer funds to process these government-backed loans.
The Select Subcommittee’s investigation seeks to understand the fraud controls and compliance systems that FinTechs have applied to their PPP loan programs. Full cooperation with this investigation will aid the Select Subcommittee in its mission to ensure that coronavirus relief funds are administered both responsibly and equitably.
“The Select Subcommittee has consistently advocated for increasing access to loans and capital to those in underserved markets, including businesses owned by veterans, members of the military, socially and economically disadvantaged individuals, and women. In achieving this goal, both now and in the future, FinTechs and their bank partners may have an important role to play through participation in small business loan programs. However, future partnerships must be contingent on FinTechs and their bank partners’ demonstrated ability to properly administer taxpayer funds and not jeopardize the integrity of the programs in which they participate.” the Chairman wrote.
The Select Subcommittee’s investigation builds on its March 2021 findings that under the Trump Administration, the Department of the Treasury and SBA failed to institute adequate safeguards to prevent waste, fraud, and abuse in pandemic relief programs, leading to nearly $84 billion in potentially fraudulent loans. Chairman Clyburn previously referred the matter to the Inspectors General at Treasury and SBA for review. The SBA Inspector General found that under the Trump Administration nearly 55,000 loans for approximately $7 billion were issued to potentially ineligible businesses, and SBA did not implement controls “that could have reduced the likelihood of ineligible or fraudulent business a PPP loan.”