Following reports from ProPublica and other news outlets, a House committee has launched a formal investigation into how multiple online lenders may have facilitated fraudulent Payday Protection Program loans.
House Select Subcommittee on Coronavirus Crisis probe seeks answers to Kabbage and BlueVine, online lending platforms that have handled hundreds of thousands of government loans to small businesses, and Celtic Bank and Cross River Bank, which have often partnered with web-based lenders.
While these highly automated lenders helped The $ 800 billion Small Business Administration Assistance Program targets small businesses that have not been served by traditional banks and have also been targeted by fraudsters.
“I am deeply concerned about recent reports that financial technology (FinTech) lenders and their banking partners have failed to properly screen PPP loan applications for fraud,” said Subcommittee Chairman James E. Cliburn, a South Carolina Democrat. “This setback may have resulted in millions of dollars in FinTech-facilitated PPP loans being made available to fraudulent, non-existent or otherwise unacceptable businesses.”
Subcommittee letters to the subjects of investigation cited articles published by Bloomberg, Miami Herald, Project on Government Oversight and ProPublica, which revealed that fintech companies are the culprit behind the fraud that has plagued PPPs from the outset.
Last week ProPublica disclosed that Cabbage handled 378 loans totaling $ 7 million for sole proprietors that do not appear on the corporate records of their respective states. The vast majority identified themselves as farms, usually registered at residential addresses with no discernible agricultural activity.
“The illegality of these alleged farms, including the potato fields in Florida and the orange groves in Minnesota, would have been apparent if a minimum of due diligence had been carried out on loan applications,” the subcommittee said. wrote in his letter to Kabbij, which was acquired by American Express last fall.
The letter requires a long list of documents, including any records of potential fraudulent activity on the platform, documents describing what resources were devoted to detecting fraud, and a description of how the company hired PPP applicants and how this encouraged loan reviewers to process more applications.
These questions are mostly related to Cabbage’s behavior before she became part of American Express, which did not acquire Cabbage’s loan portfolio or service division, which is now incorporated into a separate company. The new company, dubbed K Servicing, continued to process new PPP bids as well as close bids from the first round.
Kabbazh also reportedly The Ministry of Justice is investigating how the PPP loan amounts were calculated.
An American Express spokesman, who had previously stated that Cabbage had followed all required fraud protocols and reported suspicious loans to the SBA, directed questions to K Servicing. Representatives for K Servicing, BlueVine, Cross River, and Celtic Bank did not respond to requests for comment.
This story was first published on ProPublica on May 28, 2021.