PPP crooks made fintech companies their lenders of choice


In April, the Paycheck Protection Program was criticized for acting too slowly and leaving too many people behind. Part of the $ 2 trillion Cares Act, it was created to provide forgivable loans to small businesses such as restaurants and barbershops that would help them stay afloat during Covid-19 lockdowns in the states. -United. Banks were initially responsible for administering the government. back-to-back payments. In an effort to distribute much-needed cash more quickly, web-based businesses were later allowed to participate in the program. Grateful companies praised their speed.

It turns out that the crooks found them useful as well.

FinTech companies have processed 75% of approved PPP loans that have been linked to fraud by the U.S. Department of Justice, according to a Bloomberg analysis of more than 100 loans at the business hub. FinTech companies arranged only 15% of PPP loans in total. These include Kabbage and BlueVine Capital, as well as banks and non-bank lenders that work with these companies, including Bank of the Cross River, Celtic Bank, and Capital loan.

In many cases, a simple Google or state records search would have suggested that an applicant’s business did not exist or was dormant. A borrower facing charges reportedly obtained $ 3 million approval from Ready Capital Corp. for a business in Beaumont, Texas, even though the business did not have a website or social media presence and the business address provided, according to Google Maps, was for one-family home. (Investigators intervened before the loan was funded.) Another borrower in Little Rock, Ark., Received nearly $ 2 million in Kabbage Inc. and BlueVine Capital Inc. for companies that were not in good standing with the Secretary of State.

Borrower fraud does not mean lenders broke program rules and weren’t charged with wrongdoing. The United States let them rely on applicants’ self-certifications that they were eligible for loans. A spokesperson for Ready Capital said it “has implemented due diligence measures and complied with SBA guidelines to provide quick relief to small businesses.” Kabbage and BlueVine also said they took steps to review the nominations.

But the need for speed may have had unintended consequences. “The fraud checks didn’t really happen from the start,” says Bill Phelan, senior vice president of PayNet, a unit of Equifax Inc. that helps lenders assess the risk of business loans. “The idea was to get the money out and help businesses survive.”

Bloomberg has examined hundreds of pages of files and crossed them with public files to identify lenders involved in the criminal cases. The analysis focused on the cases in which loans had been financed or approved and the type of lender could be identified.

The cases brought by the Department of Justice represent an estimated $ 175 million in suspected fraud, which is a small fraction of the $ 525 billion in loans approved under one of the largest government relief programs in the country. story. But PayNet says that among loans of $ 150,000 or more, about $ 20 billion – or up to 5% – raise red flags.

At the start of the PPP, jointly managed by the Treasury Department and the Small Business Administration, many of the larger banks priority existing customers to avoid the risk of fraud or money laundering. This left small businesses with no banking relationships scrambling to get money before it ran out.

Emissaries from the FinTech sector appealed to authorities, saying they could reach vulnerable businesses. They have the green light April 14, date on which almost two thirds of the first round of $ 349 billion in funding had been allocated. Lawmakers then made $ 320 billion more available. FinTechs dominated this second round, which ended in August. Kabbage, who had never processed an SBA loan before, overtook mega-banks to become the second-largest PPP lender in volume of applications, approving funds for nearly 300,000 companies. (BlueVine and Cross River Bank were also among the top ten lenders in the program in terms of request volume.) More than 75% of requests submitted by Kabbage were approved “without human intervention or manual review,” according to a company report. . The median approval time: four hours.

A spokesperson for Kabbage said the data and technology allowed him to perform “rigorous verification checks” that “went well beyond the minimum requirements issued by the SBA.” Kabbage performs additional verification analyzes after loans are approved but before they are disbursed.

All over the internet, anxious business owners have been swapping tips about which lenders have the easiest application processes and which ones are taking on new clients. Borrowers have spoken of online lenders approving their loans in less than an hour. The one whose application was processed by BlueVine received SBA approval so quickly that the person wondered if something was wrong.

A representative for BlueVine said the duty officer turned down up to 9% of requests received due to suspected fraud and less than 2% of loans receiving funding raised concerns. BlueVine “applied advanced fraud prevention techniques” and tried to “safely support” as many business owners as possible. This “included taking a potentially greater risk of fraud” than that faced by lenders by prioritizing only existing customers, a spokesperson said in response to questions.

The SBA declined to comment, while a spokesperson for the agency’s Inspector General’s office called the tilt toward fintech “no surprise.” Representatives for Cross River Bank and Celtic Bank did not respond to multiple requests for comment.

Normally, companies that attempt to automate underwriting are prone to loss. But because the loans are 100% guaranteed by the SBA, taxpayers could bear the cost of the fraudulent loans. “The SBA said, ‘We want this thing out there, and as long as they stick to the forms, we don’t hold the lenders or the banks responsible,” “said Wendy Cai-Lee, Managing Director of Piermont Banque in New York. PPP was the “perfect program” for fintechs, she says. “It was about volume and doing it in a very short period of time, where that could be a formula.”

“When dealing with small businesses, information is often scattered and disparate,” making it easier for crooks, says John Chung, COO of IDM, a data consulting firm that helps clients to detect fraud. “When you set it up with the SBA trying to get the money fast, it’s a recipe for disaster.” —With Mark Niquette and Zachary R. Mider

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