FinTechs Face PPP Probe Long After Emergency Business Loans Were Dispersed

Long after nearly $800 billion in Paycheck Protection Program (PPP) life-line loans were rapidly dispersed to ailing businesses during the height of the pandemic, a much more methodical accounting of the process has revealed its strengths and weaknesses — at least for the many upstart FinTechs that helped process them.

As has been widely reported, the U.S. Department of Justice is conducting a civil probe into whether some FinTechs – Kabbage among them – made mistakes as they distributed federal PPP funds. The investigation (which is not necessarily focused on wrongdoing) reportedly examines whether lenders were accurate in determining the correct loan amounts, tied in part to whether they used payroll taxes in determining the size of borrowing firms’ payrolls. Reuters, which initially reported on the investigation, said that Kabbage and other FinTechs are under scrutiny because they used software to process the loans – and software and other tech glitches were in evidence.

Fake Businesses?

ProPublica reported this week that Kabbage, which processed nearly 300,000 PPP loans last summer in the first wave of disbursements, made 378 small loans totaling $7 million to business entities that wound up being fake. All of those firms were presented as micro-businesses, owned and operated by individuals, and were classified as farms, per the report, “even in the unlikeliest of locales, from potato fields in Palm Beach to orange groves in Minnesota.”

To be sure, the suspect activity as reported by ProPublica is a fraction of the roughly $780 billion extended by the PPP program in its entirety across more than 5,470 lenders. But, as Kabbage noted in its own report, the firm’s presence within the PPP has been sizable: The $7 billion extended to nearly 300,000 customers saved about 945,000 jobs, the company said last August.

“While many large banks closed their PPP applications in May [of 2020], we kept processing applications through the extended program in August to ensure that small businesses had maximum access to capital in this uncertain public-health emergency and economic crisis,” said Kabbage.

One tactic behind the alleged fraud may be synthetic ID fraud, according to ProPublica. And fraud has been making the headlines, such as the case reported earlier this month that a California man garnered $5 million in PPP loans and bought expensive cars with the proceeds, including a Lamborghini.

What might be at issue, and under the microscope in any investigation, would be the technology underpinnings of Kabbage and other platforms. Software and advanced analytics have allowed loans to be processed and disbursed with speed, while more traditional players/banks were initially overwhelmed with demand early in the program.

As to the frictions surrounding forgiveness: Last month, the Credit Union National Association (CUNA) told a House Committee that there is a significant backlog of forgiveness applications still waiting for a response from the Small Business Administration (SBA).

The PYMNTS Main Street Survivor study showed that 16 percent of Main Street Survivors (firms that have pivoted to do business across online and offline channels) applied for PPP assistance in early 2021, compared to an average of 21 percent that had done so since March 2020.

Read More On PPP Loans:

IRS Boosts Safeguards on Tax Credit to Prevent PPP-Like Fraud

UK Watchdog: $1B of COVID Relief Loans Were Fraudulent

Congressional Report: Fraud in PPP Loans Separated FinTechs From Banks

US Lawmakers Say FinTechs in PPP Acted ‘Recklessly’