US fintechs blasted for role in Covid loan fraud
A US select committee investigating fraud in the country’s pandemic support schemes has criticised fintech companies for “recklessly” handing out loans without the appropriate checks.
A report from the committee, released today, found that many fintechs did not take sufficient measures to safeguard against fraudulent loans.
It has called for fintechs to be banned from participating in any future state-backed schemes and for further investigation by the Department of Justice, according to a report in Finextra.
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“As today’s report details, many fintechs, while promising to help disburse billions of Paycheck Protection Program (PPP) dollars to struggling small businesses efficiently and expeditiously, refused to take adequate steps to detect and prevent fraud despite their clear responsibility to safeguard taxpayer funds,” said James E. Clyburn, Republican lawmaker and chair of the committee.
“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. 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.”
The report said that the fintechs were aware of the volume of fraud but evaded responsibility, instead blaming the quality of the rules set out by the Small Business Administration, which administered the scheme.
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In May 2021, the Select Subcommittee launched a probe into the role of accredited fintech lenders Kabbage and Bluevine, as well as partner banks Cross River Bank and Celtic Bank, in PPP fraud, after concerns that they were linked to unusually high numbers of fraudulent loans. The PPP is a similar scheme to the coronavirus business interruption loan scheme in the UK.
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The investigation was expanded in November 2021 to encompass Blueacorn and Womply after an analysis found high numbers of fraudulent PPP loans were administered by these firms as well.
In the UK, the government has warned that up to £3.3bn of bounce back loans could be lost to fraud. The scheme offered loans of up to £50,000 that were fully underwritten by the government, with minimal checks from accredited lenders.