This story was originally published by ProPublica.
Financial technology firms at the front lines of approving loans through the Paycheck Protection Program — intended to help small businesses survive during the pandemic — lacked fraud controls, chased high fees to the detriment of some borrowers and sometimes exploited their business relationships to arrange suspect loans for the companies’ own executives. One such executive falsely claimed in loan documents to be a Black veteran and received loans through multiple business entities.
These are among the findings in a
report released Thursday by the House Select Subcommittee on the Coronavirus Crisis, which investigated the role financial technology firms, known as fintech companies, played in propagating PPP loan fraud. The committee referred its findings to the Department of Justice and to the Small Business Administration’s Office of Inspector General.
“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,” said
Rep. James Clyburn, D-S.C., the subcommittee’s chairman, in a statement released with the new report. “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.”
Fintechs were often the front door to the PPP program: They processed huge quantities of loan applications and were hired in part to vet the documents for obvious signs of fraud before sending them on to lenders. But the vetting was often lacking. The investigation kicked off
shortly after ProPublica reported that one fintech, Kabbage,
approved hundreds of loans for fake farms, including what claimed to be a potato farm in Palm Beach, Florida, an orange grove in Minnesota and a cattle farm on a sandbar in New Jersey. “The illegitimacy of these purported farms,”
Clyburn wrote in a letter to Kabbage at the time, “would have been obvious if even the bare minimum of due diligence had been conducted on the loan applications.”
The report found that Kabbage at one point had only one full-time anti-fraud employee and considered the risk of approving fraudulent loans minimal. “A fundamental difference is the risk here is not ours — it is SBAs,” said one risk manager to his team when asked about identifying fraudulent loans, according to a company email cited in the committee’s report. Kabbage’s then- head of policy wrote that “at the end of the day, it’s the SBA’s shitty rules that created fraud, not [Kabbage].”
In a statement, the company said it was proud of the role it played in supporting businesses during the pandemic. “Kabbage’s existing online lending platform was able to process the sudden flood of loan applications, in a timely manner, in the midst of a national crisis and in light of ever-changing federal lending rules,” it said. “Kabbage adhered to the applicable rules and regulations in good faith.” The statement accused the committee of reaching a predetermined conclusion and asserted that the report does a “disservice” to the American people.
The House report heavily cites ProPublica’s reporting and its
public database of PPP loans, as well as reporting from the Miami Herald, Bloomberg, the Project on Government Oversight and others.
According to the report, fintech firms acted as “paths of least resistance” for fraudsters looking to get taxpayer-funded loans, all the while lining owners’ pockets with lucrative fees for doing so. The companies were paid for every loan paid out and were incentivized to process loans quickly without doing much due diligence.
One such lender singled out in the report, Blueacorn, instructed staff to push through high-dollar loans that the company called “VIPPP” loans internally. The original fee structure for PPP loans meant that small loans netted Blueacorn and other services a few hundred dollars, while large loans would yield tens of thousands of dollars.
In Slack messages obtained by the committee, Stephanie Hockridge Reis, one of the company’s founders, made clear what the priorities should be. In one message, she said “closing these monster loans will get everyone paid.” In another, referring to a $1.9 million loan as a “deal,” she wrote, “I don’t need to tell you how much Blueacoron makes off that loan alone.” She said of lower-dollar loans, “delete them, who fucking cares.”
