Report: Kabbage, FinTechs Under Justice Department Scrutiny For PPP Loan Distribution

The U.S. Department of Justice is conducting a civil probe into whether some FinTechs distributing federal Payroll Protection Program relief botched loan sizes, Reuters reported, citing numerous unnamed sources.

One of the companies the government is looking into is Atlanta-based Kabbage, according to the wire service. Spokesmen for American Express, which purchased a significant portion of Kabbage assets, and the Justice Department, declined comment, according to Reuters.

The Payroll Protection Program, often called simply the PPP program, relied on banks, FinTechs and other lenders to distribute billions of dollars with the understanding the federal government, through the Small Business Administration, would reimburse them. Borrowers that maintained payrolls aren’t supposed to have to pay money back.

According to Reuters, the newly reported investigation has centered on whether lenders accurately included payroll taxes in determining the size of companies’ payrolls and therefore the amount they were eligible to borrow. The matter is complicated because of the need to factor in not just federal payroll taxes, but in some cases local and state payroll taxes as well.

Reuters reported that FinTechs are under special scrutiny because many rely on software to process loan applications, and the number of software glitches and replicated errors proved problematic.

A Small Business Administration spokesman declined to comment on the investigation, Reuters stated.

Lenders, for their part, have complained they were pressured to process deluges of loan applications even as guidelines for issuing loans were changing, Reuters reported.

According to the federal Small Business Administration, 5,476  lenders had approved about 10.8 million loans totaling more than $780 billion as of May 2, 2021, the most-recent date range for which data is available.

For 2021 so far, according to the federal government, the vast majority of the 5,249 issuers of PPP loans have been banks (4,116, or 78 percent) and credit unions (844, or 16 percent). Only 34 were in the category “FinTechs (and other state-regulated).”

While FinTechs represented only a tiny portion of 2021 loan issuers — about 1 percent — they were dramatically over-represented in the number and total cash value of loans, according to federal data. FinTechs were behind more than 19 percent of loans and 8 percent of total loan proceeds distributed.