House Subcommittee Launches Investigation into Role of Fintech Companies in Allegedly Fraudulent PPP Loans – Technology

House Select Subcommittee on Coronavirus Crisis Recently
announced an investigation into the role of four fintech companies and partner banks in the issuance of allegedly fraudulent loans under the Payroll Protection Program (PPP). A press release from the Subcommittee cites some reports that the fintech industry and its banking partners “have been associated with a disproportionate number of fraudulent PPP loans … raising questions about whether fintech companies and their banking partners have adequately screened applications for obtaining PPP loans for fraud ”. This announcement is based on the March 25th Subcommittee. conclusions that the Treasury Department and the SBA failed to establish adequate safeguards to prevent waste, fraud and abuse in pandemic relief programs, resulting in nearly $ 84 billion in potentially fraudulent loans.

Along with this announcement, Representative Jim Clyburn, Chair of the Subcommittee, sent out letters to these companies requesting documents and information regarding, inter alia, the establishment or regulation of the process used to review and approve PPP loan applications, as well as all communications regarding potential fraud. … or other financial crime related to

PPP loans. The letters noted that criminals were looking for FinTech companies to obtain fraudulent PPP loans because of their speed of processing such loans – in some cases as little as one hour – with minimal due diligence. Letters from the Subcommittee can be found here, here, here, as well as here…

We put it into practice: Like another one example Of the scrutiny that pandemic relief program participants face by regulators, fintech companies and their partner banks need to be prepared for future government requests. While the Subcommittee seeks to understand the fraud and compliance controls that companies have applied to their PPP lending programs, this investigation highlights the value of strict and consistent due diligence policies and procedures in identifying fraudulent business loan processing and financing applications in general. To mitigate potential risk, fintech companies must ensure that their commercial lending programs include:

• Lending policies and procedures that verify the accuracy of loan documents and information and include processes for borrowers and high-risk transactions such as management oversight;
• Improving internal controls and post-closure due diligence, including audits of closed loans and red flag procedures for immediate corrective action;
• Avoiding or limiting fees and other internal incentives that encourage employees to focus on loan volume at the expense of loan quality; as well as
• A highly qualified and efficient team of professionals in the field of quality control.

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.