Congress investigates PPP fraud at fintech lenders BlueVine and Kabbage
- Congress is investigating fraudulent loans facilitated by fintech lenders BlueVine and Kabbage.
- While fintech lenders only processed 15% of total PPP volume, they are involved in 75% of fraudulent loans identified by the DOJ.
- Fintechs boasted of fully automated PPP applications and faster approvals than traditional banks.
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Congress has launched a formal investigation into potentially fraudulent Paycheck Protection Program loans, facilitated by online lenders like BlueVine and Kabbage.
The House of Representatives Special Subcommittee on the Coronavirus Crisis announced the probe Friday, sending letters to BlueVine and Kabbage.
75% of PPP loans linked to fraud in a DOJ investigation were facilitated by fintech lenders, the committee said in the letter, citing a Bloomberg report. These fintech lenders only processed 15% of total PPP volumes, he said.
“I am deeply disturbed by recent reports that FinTech lenders and their banking partners have failed to adequately screen PPP loan applications for fraud,” said Representative James E. Clyburn , chairman of the Special Subcommittee on the Coronavirus Crisis, in a statement. declaration.
“This failure may have led to the granting of millions of dollars in FinTech-facilitated PPP loans to fraudulent, non-existent or otherwise ineligible companies.”
A survey by ProPublica found that Kabbage facilitated 378 loans totaling $ 7 million to businesses that probably don’t exist. Many of these fraudulent claims were linked to farms registered at residential addresses in areas like southern New Jersey and Palm Beach, Florida.
While it was BlueVine and Kabbage’s technology that handled loan applications, the fintechs themselves are not banks and therefore have partner banking relationships that support their lending activities. BlueVine’s partner bank, Celtic Bank, and Kabbage’s partner, Cross River Bank, are both part of the subcommittee’s investigation.
The investigation seeks to determine whether BlueVine, Kabbage and their partner banks had adequate controls in place to prevent PPP funds from ending up in the wrong hands.
American Express acquired Kabbage in October 2020, although the deal did not include Kabbage’s existing credit portfolio, which included PPP loans. Kabbage’s outstanding loans were transferred to a new entity called K Servicing.
A Kabbage spokesperson told Bloomberg it was performing “rigorous verification checks” that “go well beyond the minimum requirements issued by the SBA.” For its part, BlueVine told Bloomberg that it has “implemented advanced fraud prevention techniques” and attempted to “safely support” business owners.
Fintech lenders have bragged that automation is helping underserved small businesses
Deploying the PPP, an effort to support small businesses amid closures due to a coronavirus pandemic, has not been straightforward.
As companies rushed to fill out forgivable loan applications, the nation’s largest banks, like JPMorgan Chase and Wells Fargo, prioritized existing customers who had already gone through compliance processes.
This has left many small businesses unable to access PPP loans. Ultimately, many turned to fintech, including BlueVine, Kabbage, PayPal, and Square.
These digital-only lenders had automated application processes requiring very little human intervention, allowing them to quickly gain business approval.
But the majority of their PPP applicants were new customers, which meant they hadn’t already taken the necessary compliance steps, like “know your customer”.
98% of Kabbage’s PPP borrowers were new customers. And Kabbage says that due to its “commitment to data and technology to drive automation,” over 75% of its approved loans have been processed without human intervention.
Now Congress wants to know if these fully automated processes have made fintech the lenders of choice for fraud networks.
“Bloomberg report points to several cases of fraud that could have been avoided had FinTechs simply searched the web for the company’s name of inactive, non-existent or clearly ineligible candidates,” the House subcommittee said in his letter to BlueVine.