Online companies fusing tech and financing became major players in the government’s Paycheck Protection Program in the past year. A new academic analysis suggests they also fueled billions in fraudulent loans.
The McCombs School of Business at the University of Texas, Austin released a report Tuesday analyzing the $780 billion lending program that boosted the burgeoning “fintech” market, which replaced traditional banking relationships with apps and algorithms.
Overall, the report identified more than 1.8 million loans with indications of potential fraud by borrowers, representing about $76 billion – nearly 10% of the total loaned in the COVID-19 business assistance program. About 960,000 of those, $21 billion, came through the new online lenders.
Lead researcher John Griffin said the team looked at nine indicators, including four primary and five secondary red flags that could indicate misreporting by borrowers.
“We … found widespread evidence of misreporting, and it’s not just random,” Griffin said. “There’s a very strong pattern (showing) a cluster of fintech originators.”
Although the PPP funds are technically loans, they can be forgiven if businesses prove they saved jobs and used the money correctly. Small Business Administration data shows only a fraction, about 17,000, have been repaid.
The report outlines how borrowers, including criminals, could create fake companies with fake head counts and fake salaries to capture a slice of the pandemic assistance, facilitated by the largely automated review of fintech lenders.
The research takes aim at companies that claim suspiciously high-paying jobs clustered in single residential homes. That was the case in two Chicago cases highlighted in the report.
Those two loans were originated by Kabbage, a pioneer in fintech PPP lending that is the target of probes by Congress and others. It provided millions in loans to fake farms last year, according to a review by ProPublica. Company representatives for Kabbage, now owned by American Express, and the company that still holds the loans, K Servicing, declined to comment.
Representatives from Blueacorn, a marketing partner with two of the other fintechs highlighted in the report – Capital Plus and Prestamos CDFI – also were contacted by USA TODAY for comment. They pushed back at the report’s findings, sending a letter from a company attorney to UT Austin’s president over the weekend asking him to delay its release or face “reputation damage” and “large scale repercussions.” The CEO of Capital Plus sent a letter to the university’s president Monday.
The two Blueacorn lenders stood out in the report based on volume of loans granted and the percentage flagged by the researchers as suspicious – including being first and second in the nation for writing loans to businesses created after a February 2020 cutoff for PPP…
Read More: COVID-19 PPP loan borrower fraud fueled by fintechs, report finds