Clyburn Letter to Kabbage on FinTech PPP Fraud (May 2021)
Summary
A letter dated May 27, 2021 from Chairman James E. Clyburn of the House Select Subcommittee on the Coronavirus Crisis to Rob Frohwein, Chief Executive Officer of Kabbage, Inc., requesting documents and information on the company's Paycheck Protection Program (PPP) fraud controls. The letter cites reports that FinTech lenders and their bank partners failed to adequately screen PPP applications, and states that Kabbage issued over 300,000 PPP loans worth $7 billion between April 3, 2020, and August 8, 2020. It cites reporting by ProPublica that Kabbage made at least 78 loans totaling $7 million to fake business entities. The letter requests six categories of documents and written answers to 11 questions by June 11, 2021, and asks the company to confirm its cooperation by June 4, 2021.
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# Letter: Chairman Clyburn to Kabbage, Inc. (Rob Frohwein) re: FinTech PPP Fraud - **Title:** Letter to Mr. Rob Frohwein, Chief Executive Officer, Kabbage, Inc. re: FinTech PPP Fraud - **Body:** House Select Subcommittee on the Coronavirus Crisis (Chairman James E. Clyburn, 117th Congress) - **Date:** May 27, 2021 - **Doc type:** Congressional investigation / document-and-information demand letter - **Recipient:** Mr. Rob Frohwein, Chief Executive Officer, Kabbage, Inc., 730 Peachtree Street NE, Suite 1100, Atlanta, GA 30308 - **Source URL:** https://coronavirus-democrats-oversight.house.gov/sites/evo-subsites/coronavirus-democrats-oversight.house.gov/files/2021-05-27.Clyburn%20to%20Kabbage%20re%20FinTech%20PPP%20Fraud.pdf - **Press item:** https://coronavirus-democrats-oversight.house.gov/news/letters/select-subcommittee-launches-investigation-role-fintech-industry-ppp-fraud - **Retrieved:** 2026-06-12 --- ## Key verbatim demands / allegations - **Framing allegation:** "I am deeply troubled by recent reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud. This failure may have led to millions of dollars in FinTech-facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses." - **Statistical predicate:** "According to analysis by Bloomberg, while FinTechs processed just 15 percent of PPP loans overall, they are associated with 75 percent of the approved PPP loans that the Department of Justice (DOJ) connected with fraud. A separate investigation by the nonpartisan Project on Government Oversight (POGO) found that nearly half of approved loans cited in criminal court documents involved seven FinTech companies and their bank partners." - **"Blistering rate" quote:** "One FinTech official reportedly said that their company handled PPP loans 'at a blistering rate and with less due diligence than it would normally exercise if its own funds, rather than taxpayer dollars, were on the line.' This indifference to the proper disbursement of public funds is unacceptable." - **Automation boast:** "One FinTech lender associated with multiple prosecutions of PPP fraud boasted that 'over 75% of all approved applications, and more than 90% of self-employed applications, were processed without human intervention or manual review.'" (Footnoted to Kabbage's own PPP report.) - **Kabbage scale & fees:** "Kabbage, which was recently acquired by American Express, issued over 300,000 PPP loans worth $7 billion between April 3, 2020, and August 8, 2020, making it the second-largest PPP lender by application volume. Independent experts estimate that the company has earned at least $330 million in fees on the $7 billion in approved loans." - **Fake-farms allegation:** "Recent reporting by ProPublica found that Kabbage made at least 78 loans totaling $7 million to fake business entities—the overwhelming majority of which were self-categorized as farms. The illegitimacy of these purported farms—including potato fields in Florida and orange groves in Minnesota—would have been obvious if even the bare minimum of due diligence had been conducted on the loan applications." - **Specific fraud examples cited:** $350,000–$1M to a Florida entity created after the eligibility deadline with no online footprint; $2M facilitated to Arkansas businesses not in good standing; $1.3M to a paper company with no employees controlled by a three-time felon who then bought an 18-room Tuscan-style mansion in New Jersey and a riverfront motel near Branson, Missouri; $300,000–$700,000 to Louisiana companies registered days before applying and operated by a borrower with delinquent SBA loans. - **Deadline:** Documents and written responses due **June 11, 2021**; confirmation of cooperation due **June 4, 2021**. ### Documents requested (6 items) 1. All documents/policies establishing or governing Kabbage's PPP loan review and approval process. 2. All documents/policies on (a) preventive controls to deter/minimize PPP fraud and (b) detective controls to identify/respond to PPP fraud after it occurred. 3. All communications concerning potential fraud or financial crime related to PPP loans (emails, persistent chat logs, direct messages, senior leadership meeting minutes). 4. All employee/contractor training materials (Jan 2020–present) on fraud control, PPP loans, financial-crime investigations, suspicious activity reporting. 5. All audits/statistics/external reviews estimating improper payments to PPP applicants processed/facilitated by Kabbage. 6. The completed SBA Form 3507. ### Written information requested (11 items, abbreviated) Total PPP revenue to date; applications/loans approved by week (Apr 2020–present); applications denied by week and reason; count of full-time AML/BSA/fraud-compliance staff by week (Jan 2019–present); list of all fraud checks on PPP applications + time to approve/reject; same for non-PPP applications; Kabbage's own estimate of number/value of potentially fraudulent PPP loans facilitated; description of automated fraud/AML detection indicators and escalation triggers; description of bank/non-bank partner relationships incl. revenue- and liability-sharing agreements; description of how Kabbage recruited PPP applicants (marketing/advertising); description of any monetary/non-monetary incentives to employees processing PPP applications. **Authority cited:** H.Res. 8, sec. 4(f), 117th Cong. (2021); H.Res. 935, 116th Cong. (2020). **cc:** The Honorable Steve Scalise, Ranking Member. --- ## Full verbatim text May 27, 2021 Mr. Rob Frohwein Chief Executive Officer Kabbage, Inc. 730 Peachtree Street NE Suite 1100 Atlanta, GA 30308 Dear Mr. Frohwein: As the Select Subcommittee on the Coronavirus Crisis continues investigating potential waste, fraud, and abuse in the Paycheck Protection Program (PPP), I am deeply troubled by recent reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud. This failure may have led to millions of dollars in FinTech-facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses. Recent reports indicate that Kabbage, an Atlanta-based FinTech lender, has facilitated a large number of loans connected to ineligible companies and fraudulent applications. I am writing today to request documents and information necessary for the Select Subcommittee to understand whether Kabbage and other FinTech lenders and their bank partners implemented and utilized necessary fraud controls in reviewing PPP loan applications. According to analysis by Bloomberg, while FinTechs processed just 15 percent of PPP loans overall, they are associated with 75 percent of the approved PPP loans that the Department of Justice (DOJ) connected with fraud. A separate investigation by the nonpartisan Project on Government Oversight (POGO) found that nearly half of approved loans cited in criminal court documents involved seven FinTech companies and their bank partners. This failure to detect fraud occurred while Kabbage and other FinTechs made hundreds of millions of dollars in fees by issuing publicly funded PPP loans. This analysis lends credence to reports that criminal actors sought out FinTechs for fraudulent PPP loans because of the speed with which the FinTech companies processed the loans—which in some cases could be approved in "as little as an hour"—and the fact that the FinTech loan application process appeared to include very little scrutiny of its applicants. One FinTech official reportedly said that their company handled PPP loans "at a blistering rate and with less due diligence than it would normally exercise if its own funds, rather than taxpayer dollars, were on the line." This indifference to the proper disbursement of public funds is unacceptable. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 to provide relief to millions of Americans struggling due to the pandemic. The CARES Act empowered Treasury and SBA to develop PPP to provide millions of small businesses with vital assistance. Treasury and SBA were also charged with identifying suitable lenders to administer the program. On April 8, 2020, SBA began allowing non-bank and non-insured depository institution lenders, including FinTechs, to provide PPP loans to eligible recipients. In many instances, FinTechs partnered with a handful of regulated banks to process loans. FinTechs "onboard, verify and approve small businesses," and then submit the loans to SBA through the bank partners. Some banks would then keep the PPP loans on their balance sheets while others would sell the loans back to the FinTech or third parties. PPP requires lenders that are federally regulated financial institutions to certify under penalty of criminal prosecution that they have applied the anti-money laundering requirements under the Bank Secrecy Act; PPP lenders that are not federally regulated financial institutions are required to certify that they have followed such requirements applicable to an equivalent regulated institution. Yet many FinTechs reportedly lacked compliance management systems necessary to satisfy this requirement. One FinTech lender associated with multiple prosecutions of PPP fraud boasted that "over 75% of all approved applications, and more than 90% of self-employed applications, were processed without human intervention or manual review." Individuals involved in the manual reviews of potentially fraudulent applications at FinTechs have described the process as "perfunctory." This lack of rigor was reflected in their failures to deny applications showing clear markers of fraud. Rather than something to boast of, the rates of fraud associated with these loans strongly suggest that FinTech companies' loan screening processes were woefully inadequate. A Bloomberg report points to multiple instances of fraud that could have been prevented had FinTechs simply conducted web searches for the company name of inactive, nonexistent, or otherwise clearly ineligible applicants. Kabbage, which was recently acquired by American Express, issued over 300,000 PPP loans worth $7 billion between April 3, 2020, and August 8, 2020, making it the second-largest PPP lender by application volume. Independent experts estimate that the company has earned at least $330 million in fees on the $7 billion in approved loans. Despite this windfall, the list of fraudulent PPP loans connected to Kabbage is extensive and growing. Multiple Kabbage-approved PPP loans are now connected to DOJ fraud prosecutions, casting significant doubt on the adequacy of the company's onboarding and fraud detection process. A joint investigation by the Miami Herald, McClatchy DC, and the Anti-Corruption Data Collective also found that about 20 percent of the PPP loans that they identified as suspicious were approved by Kabbage. In one case, Kabbage loaned between $350,000 and $1 million to a Florida corporate entity established nearly three months after the deadline that businesses had to be operational by to qualify for PPP loans. The company did not have any online footprint, was registered to a residential address, and did not have proper licenses for their purported line of business. In another incident, Kabbage and a partner FinTech facilitated loans for $2 million in PPP funds to businesses in Arkansas that were not in good standing with the Arkansas Secretary of State. In a separate instance, Kabbage facilitated a loan of $1.3 million to a "company" that existed only on paper, having no employees or operations and with no record of ever filing federal or local taxes, and that was controlled by an individual who was previously convicted of three felonies related to theft and counterfeiting. After receiving these funds, the recipient of the PPP loan purchased an 18-room-Tuscan-style mansion in New Jersey and a riverfront motel outside of Branson, Missouri. In yet another troubling episode, Kabbage facilitated between $300,000 and $700,000 in loans to companies in Louisiana registered just days before making their loan application and operated by a borrower with delinquent SBA loans, in violation of PPP lending rules. Recent reporting by ProPublica found that Kabbage made at least 78 loans totaling $7 million to fake business entities—the overwhelming majority of which were self-categorized as farms. The illegitimacy of these purported farms—including potato fields in Florida and orange groves in Minnesota—would have been obvious if even the bare minimum of due diligence had been conducted on the loan applications. The Select Subcommittee has consistently advocated for increasing access to loans and capital to those in underserved markets, including businesses owned by veterans, members of the military, socially and economically disadvantaged individuals, and women. In achieving this goal, both now and in the future, FinTechs and their bank partners may have an important role to play through participation in small business loan programs. However, future partnerships must be contingent on FinTechs and their bank partners' demonstrated ability to properly administer taxpayer funds and not jeopardize the integrity of the programs in which they participate. To help the Select Subcommittee better understand the PPP fraud detection processes applied by FinTech lenders and their bank and non-bank partners, please produce the following documents and information, accounting for the activities of Kabbage and all of its successor and predecessor entities, by June 11, 2021. 1. All documents and policies establishing or governing the process that Kabbage used to review and approve PPP loan applications. 2. All documents and policies related to: a. any system of preventive controls that Kabbage has used to deter and minimize fraud related to PPP loans; and b. any system of detective controls Kabbage had in place to identify and respond to PPP loan fraud after it had occurred. 3. All communications concerning potential fraud or other financial crime related to PPP loans, including, but not limited to, emails, persistent chat room logs and transcripts, direct electronic messages, and minutes of senior leadership meetings. 4. All training materials provided to employees and contractors from January 2020 to the present related to fraud control and prevention, PPP loans, financial crime investigations, and suspicious activity reporting. 5. All documents, including audits, monthly statistics, and external reviews, containing assessments or estimates of the amount and value of improper payments that have been made to PPP applicants whose loans were processed through or facilitated by Kabbage. 6. The completed SBA Form 3507. Please also provide written responses to the following information requests by June 11, 2021: 1. How much is Kabbage's total revenue from facilitating PPP loans to date? 2. How many PPP loan applications and loans have been approved, issued, or otherwise facilitated by Kabbage, broken down by week, from April 2020 to the present? 3. How many PPP loan applications have been denied or rejected by Kabbage, broken down by week, from April 2020 to the present, and what was the reason for denial or rejection? 4. How many Kabbage employees have been dedicated full time and exclusively to AML, BSA, or fraud compliance, including those employed full time to prevent, detect, or investigate potential fraud, broken down by week, from January 2019 to the present? 5. Please provide a list of all fraud checks conducted by Kabbage on PPP loan applications, a description of how each check serves to detect and prevent fraud, and the average time taken to approve or reject a PPP loan application. 6. Please provide a list of all fraud checks conducted by Kabbage on loan applications unrelated to PPP, a description of how each check serves to detect and prevent fraud, and the average time taken to approve a loan application unrelated to PPP. 7. What is Kabbage's assessment or estimate of the number and value of potentially fraudulent PPP loans that it has issued, approved, or otherwise facilitated to date? 8. Please provide a description of what indicators and information Kabbage's automated systems use to detect fraud or money laundering and how many and what percentage of applications were rejected through this system; please also describe what indicators trigger these automated systems to escalate an application for human review and what percentage of those escalations resulted in rejected applications. 9. Please provide a detailed description of Kabbage's relationship with any non-bank or bank partners involved in PPP loans, including the name of each entity, revenue sharing and liability sharing agreements. 10. Please provide a detailed description of how your company recruited PPP loan applicants, including marketing strategies and advertising plans. 11. Please provide a detailed description of any incentives or rewards provided to Kabbage employees processing PPP loan applications, including monetary bonuses and non-monetary rewards. These requests are consistent with the House of Representatives' authorization of the Select Subcommittee on the Coronavirus Crisis "to conduct a full and complete investigation" of "issues related to the coronavirus crisis," including the "efficiency, effectiveness, equity, and transparency of the use of taxpayer funds and relief programs to address the coronavirus crisis" and "reports of waste, fraud, abuse, price gouging, profiteering, or other abusive practices related to the coronavirus crisis." Please respond to this letter by no later than June 4, 2021, to confirm your company's cooperation. An attachment to this letter provides additional instructions for responding to the Select Subcommittee's request. If you have any questions regarding this request, please contact Select Subcommittee staff at (202) 225-4400. Sincerely, James E. Clyburn Chairman Enclosure cc: The Honorable Steve Scalise, Ranking Member [Standard enclosure follows: "Responding to Oversight Committee Document Requests" (21 numbered instructions) and "Definitions" (9 terms). Omitted here as boilerplate; full text on file in source PDF.]
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