Correction: A previous version of this article misidentified the Paycheck Protection Program.
New York
CNN Business
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Fintech lenders helped speed the delivery of forgivable government loans to small businesses crushed by the pandemic. But these tech-savvy lenders may also have opened the door to widespread fraud and misuse of taxpayer money.
Fintechs are almost five times more likely than traditional banks to have made “highly suspicious” loans through the $780 billion Paycheck Protection Program (PPP), according to research published Tuesday.
Nine of the top ten PPP lenders with the highest rate of suspicious loans are fintechs — and the remaining one acts like a fintech company, according to the study by researchers at the McCombs School of Business at the University of Texas at Austin.
Altogether, the researchers found that 1.8 million PPP loans with a total value of $76.3 billion had suspicious characteristics.
The report points to regulatory gaps and due diligence failures that allowed for suspicious lending of taxpayer money intended to help mom-and-pop shops hurt by the pandemic.
“These findings highlight the large costs of low oversight and lack of sufficient negative ramifications to borrowers and lenders for poor lending practices in the PPP,” the academics concluded.
In particular, the report found that the largest three fintech issuers of PPP loans — Cross River, Capital Plus and Harvest — all had “high and increasing rates” of misreporting and received more than $900 million each in processing fees.
The sheer scope of the suspicious lending by the fintechs, the authors wrote, suggests that “many lenders either encouraged such loans, turned a blind eye to them or had lax oversight procedures.”
The fintech industry pushed back against those arguments.
“Cross River stepped up to answer the mandate from Congress and in the process, deployed fraud detection standards that far exceeded the continuously evolving SBA program requirements,” a spokesperson for Cross River said in a statement, adding that it reached nearly half a million of the “smallest and most vulnerable businesses in need.”
Fort Lee, NJ-based Cross River said it’s “disappointing that some would use misdirected criticism, gross assumptions and unsubstantiated claims to undermine the sacrifice and countless hours that were dedicated to getting the American economy back up and running.”
The Financial Technology Association, an industry trade group, defended the role of fintechs during the pandemic.
“Despite evolving government guidance and inadequate processing systems, financial technology companies executed the goal of the PPP program with the regulatory…
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