A US select committee investigating fraud in the country's pandemic relief programme has savaged fintech companies for "recklessly" handing out loans to dubious applicants.
In May 2021, the Select Subcommittee initiated an investigation into the role of fintech companies Kabbage, Inc. and Bluevine and partner banks Cross River Bank and Celtic Bank in facilitating PPP fraud following public reports they were linked to disproportionate numbers of fraudulent loans. The investigation was expanded in November 2021 to include fintech start-ups Blueacorn PPP, LLC, and Womply, Inc., after an analysis determined significant percentages of PPP loans facilitated by the companies had indicators of fraud.
Republican lawmaker and chair of the committee, James E. Clyburn says:: “As today’s report details, many fintechs, while promising to help disburse billions of Paycheck Protection Program dollars to struggling small businesses efficiently and expeditiously, refused to take adequate steps to detect and prevent fraud despite their clear responsibility to safeguard taxpayer funds. Even as these companies failed in their administration of the program, they nonetheless accrued massive profits from program administration fees, much of which was pocketed by the companies’ owners and executives. On top of the windfall obtained by enabling others to engage in PPP fraud, some of these individuals may have augmented their ill-gotten gains by engaging in PPP fraud themselves."
Despite being aware of the volume of fraud in the handouts, the report says that fintechs sought to evade responsibility, instead blaming the Small Business Administrations "shitty rules" for creating an environment in which fraudulent applications could sneak through the screening process.
The report’s recommendations include further investigation by the Department of Justice and debarring fintechs from having any role in future federal lending programmes.
Similar investigations in the UK found that £1.1 billion of loans in the Bounce Back Loan scheme were suspected to be fraudulent.
Digital banks are among those suspected of providing these fraudulent loans, Metro bank was flagged for £7.24 million of suspected fraudulent loans and Starling for £91.97.