American Banker, "Rooting out wrongdoing in PPP loans"

Summary

An American Banker article by Jackie Stewart, published December 23, 2022, on fraud in the Paycheck Protection Program. It states that roughly 11.5 million loans were made for more than $790 billion and that some estimates put total fraud at up to 15% of the loans made. The article describes a report of the House Select Subcommittee on the Coronavirus Crisis that examined Blueacorn, Womply, Kabbage and Bluevine and noted that "at least tens of billions of dollars" went to fraudulent or ineligible applicants. It quotes statements from Celtic Bank, from Phil Goldfeder of Cross River and from Bluevine responding to the report.

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Commercial banking

Rooting out wrongdoing in PPP loans

By Jackie Stewart

About Jackie
mailto | jackie.stewart@arizent.com

Published December 23, 2022 12:01 PM

|

Updated February 9, 2023 5:16 PM

1 Min Read

There's that saying about roads and good intentions, and the Paycheck Protection Program is perhaps one of the best examples of this.

In the early days of the country's grappling with COVID-19, businesses deemed nonessential closed their doors and Americans were encouraged to stay home. Those steps sent the unemployment rate skyrocketing.

Congress acted quickly to try and ensure that as many people kept receiving a paycheck as possible. Thus, the CARES Act was born, and within that piece of legislation was the PPP , which was administered by the Small Business Administration.

Business owners could apply for PPP loans and use those funds to continue to pay their employees, even if they had to shutter their doors. The loans could be forgiven if the business owners followed certain guidelines.

Roughly 11.5 million loans were made for more than $790 billion in just a matter of months. In that respect, the program could be considered a success. It got an incredible amount of money into the pockets of millions of Americans in an unheard amount of time.

However, the rollout of the program was also chaotic, and with so much money being handed out with so little oversight, PPP loans proved attractive to fraudsters. Now the initial success of the program is being overshadowed by headlines highlighting the millions — likely billions — lost to fraud. Although a total is still unknown, some estimates put the total fraud at up to 15% of the loans made .

Here is a look at some of the developments related to PPP fraud so far and the potential long-term effects.

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Finger-pointing at fintechs

The House Select Subcommittee on the Coronavirus Crisis released a blistering report earlier this month that examined whether fintech companies allowed scammers to commit PPP fraud.

"Despite fintechs' claims that their use of technology and innovation would allow them to better administer the PPP than traditional financial institutions, many of these companies appear to have failed to stop obvious and preventable fraud, leading to the needless loss of taxpayer dollars," according to the report . The report noted that "at least tens of billions of dollars" were disbursed to fraudulent or ineligible applicants.

The report examined the practices of a few PPP fintech lenders , including Blueacorn, Womply, Kabbage and Bluevine, and found that the firms struggled to root out and prevent fraud. Celtic Bank and Cross River Bank, which both worked with some of the fintechs, were also mentioned in the House report. The report noted that Celtic and Cross River pushed Bluevine to improve its fraud controls.

The report noted that fintechs are disproportionately represented in the prosecutions the Justice Department has brought so far.

"Celtic made extensive and effective efforts to combat fraud, while at the same time adhering to Congress's and SBA's direction to get money out to companies quickly, in a time of national emergency," the company said in a statement to Bloomberg when the report came out.

"The report … vindicated Cross River. It said that partnering with Cross River, the fintech companies were forced to operate within a regulated structure," Phil Goldfeder, senior vice president of public affairs for Cross River, said to NJBIZ , a New Jersey business journal earlier in December.

"We are proud to have participated in the PPP program during a time that was truly extraordinary. As the subcommittee noted, all fintech companies are not the same, and Bluevine adapted to the ongoing threats better than some of the other fintech companies examined in the inquiry," Bluevine said in a statement to Bloomberg earlier this month.

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