American Banker, "Customers Bank to pay Kabbage $58 million in PPP settlement"

Summary

An American Banker article by Polo Rocha, published October 31, 2022 and updated with a securities filing, reporting that Customers Bancorp agreed to pay $58 million to settle a dispute over its PPP loan partnership with Kabbage. It states that the settlement still needs court approval and that the dispute involved $65.5 million in servicing and referral fees that Kabbage said Customers Bank never paid. Under the settlement agreement, Kabbage would receive an immediate cash infusion of $23 million. The article reports that the two companies made $1.8 billion in PPP loans in the first round, when Customers Bank paid $47 million in servicing fees to Kabbage, which now works with borrowers as KServicing.

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Small business banking

Customers Bank to pay Kabbage $58 million in PPP settlement

By Polo Rocha

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Published October 31, 2022, 4:17 p.m. EDT

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Updated December 14, 2022, 2:55 p.m. EST

2 Min Read

Customers Bancorp in Pennsylvania has agreed to pay $58 million to settle a dispute over its loan partnership with Kabbage during the Paycheck Protection Program.

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The settlement, which still needs court approval, should help what remains of Kabbage as the firm goes through bankruptcy proceedings following the sale of key assets to American Express in 2020. Amex chose not to acquire the online small-business lender's loan portfolio as part of the acquisition, and the remaining company filed for bankruptcy this month.

The court dispute involved $65.5 million in servicing and referral fees that Kabbage said Customers Bank never paid under their PPP partnership. Customers, a West Reading, Pennsylvania, company with roughly $20.4 billion in assets, previously argued that it did not have to pay the fees because of numerous failures by Kabbage in its processing of PPP loans.

Kabbage said in a court filing last week that the $58 million settlement with Customers Bancorp is a "key step forward" in its bankruptcy proceedings.

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In a securities filing on Tuesday, Customers Bancorp said it had previously accrued for the payments so the settlement "is not expected to have a material financial impact" on the company. It also noted that the $58 million agreement is less than what was under dispute, and that the amount should be lower due to other funds that Kabbage owes the bank.

Under the settlement agreement, Kabbage would receive an immediate cash infusion of $23 million. The company, which continues to work with borrowers under the brand KServicing, declined to comment on Monday.

Kabbage has faced inquiries from regulators over its handling of PPP loans, including over concerns that it did not apply enough scrutiny to fraudulent loans. The Miami Herald has reported that Kabbage borrowers have had major difficulties in getting their PPP loans forgiven, as the government program allows in many cases, and that the company has the lowest forgiveness rate among large PPP lenders.

Kabbage said in a court filing last week that the settlement is a "key step forward" in its bankruptcy proceedings, giving the firm liquidity to continue working with customers, and helping avoid disruptions for its customers under a more rapid wind-down of the business.

KServicing also said the settlement will further smooth the bankruptcy process by helping the company "put forward a more definitive plan and provide much needed clarity to their creditors."

The federal government launched the PPP as a life raft for small businesses during the early days of the COVID-19 pandemic. Kabbage made PPP loans and serviced them on behalf of Customers Bank and other institutions.

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Together, the two companies made $1.8 billion in PPP loans during the first round of the PPP, and Customers Bank paid $47 million in servicing fees to Kabbage.

When the second round of PPP lending opened, the two companies renewed their partnership and made some $800 million in new loans. Kabbage has said that it earned $65.5 million in loan referral and servicing fees from the second round, but that Customers Bank refused to pay "on account of alleged failures in the company's processing of PPP loans."

Kabbage says that it has continued to service the loans despite the lack of payment. It filed a lawsuit against Customers Bank in May, though KServicing said in the court filing last week that the parties reached a "fair and reasonable compromise" that will resolve their various legal disputes.

Update

This story was updated to report on a securities filing by Customers Bancorp on Tuesday.

November 01, 2022 3:58 PM EDT

Polo Rocha

Staff Writer

Polo Rocha is a Mexico-based freelance reporter who worked at American Banker from 2021 to early 2025, covering consumer finance and national banking... Read full bio

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