Congress has launched an official inquiry into possibly fraudulent Paycheck Protection Program loans made possible by internet lenders such as BlueVine and Kabbage. The inquiry follows investigations from Bloomberg and ProPublica looking into allegations of fraudulent loans granted by lenders such as Kabbage. The Select Subcommittee on the Coronavirus Crisis of the House of Representatives announced the investigation on Friday, issuing letters to BlueVine and Kabbage.
According to the letter, 75 percent of PPP loans linked to fraud through a DOJ probe were enabled by fintech lenders, citing a Bloomberg article. According to the report, these fintech lenders handled just 15% of overall PPP volumes.
According to a ProPublica investigation, Kabbage arranged 378 loans totaling $7 million to firms that most likely do not exist. Many of these bogus applications were linked to farms with addresses in places like southern New Jersey and Palm Beach, Florida.
While the loan applications were completed by BlueVine and Kabbage's technology, the fintechs are not banks and hence have partner banking connections that support their lending operations. BlueVine's partner bank, Celtic Bank, and Kabbage's partner, Cross River Bank, are also under investigation by the panel.
The investigation wants to discover if BlueVine, Kabbage, and its partner banks put in place appropriate safeguards to prevent PPP money from falling into the wrong hands.
Kabbage was bought by American Express in October 2020, however the acquisition did not include Kabbage's current credit portfolio, which includes PPP loans. The outstanding debts of Kabbage were transferred to a new business named K Servicing.
Fintech lenders boasted about how automation assisted underrepresented small companies. The launch of the PPP, an initiative to support small companies affected by the coronavirus epidemic, was less than seamless. As companies hurried to apply for the forgiving loans, the nation's major banks, such as JPMorgan Chase and Wells Fargo, favored existing clients who had already gone through compliance procedures. As a result, many small firms were unable to get PPP loans. Many people eventually resorted to fintech companies like BlueVine, Kabbage, PayPal, and Square.
These digital-only lenders touted automated application procedures that needed little human interaction, allowing them to get business approved rapidly. However, the bulk of their PPP applicants were new customers, which meant they hadn't already completed the essential compliance processes, such as 'know your client.'
98 percent of Kabbage's PPP borrowers were first-time customers. And Kabbage claims that because of its "commitment to data and technology to drive automation," more than 75% of its authorized loans were handled without the need for human interaction. Congress now wants to know if these totally automated procedures make fintechs the preferred lenders for fraud rings.