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Financial technology companies enabled Paycheck Protection Program fraud


Rampant fraud in the Paycheck Protection Program was largely due to financial technology companies. That's according to a congressional report out today. The program, called PPP for short, gave loans, some of them forgivable, to small businesses during the pandemic. NPR's Sacha Pfeiffer is covering the report. Hey, Sacha.


SHAPIRO: So we're talking about financial technology companies like what? What kind of company is that exactly?

PFEIFFER: So these are called fintechs for short. And it's basically just a fancy name for a business that uses newer technology to offer financial services - PayPal, Square, companies like that. The Paycheck Protection Program was run by the Small Business Administration. But banks processed the loans. And so many people applied for loans that banks got overwhelmed. So the government let fintechs get involved even though some of them were brand-new and had never done small business lending and are not regulated like traditional banks.

SHAPIRO: Well, that seems like a warning sign. Why would the government take a chance on untested companies like that?

PFEIFFER: Exactly - because it wanted to get money out there as quickly as possible, and fintechs boasted that they could do that faster than old-fashioned banks. And they did. They also made more loans to tiny and minority-owned businesses than banks did. Fintechs worked rapidly, and they increased lending to women and people of color, and that was viewed as a good thing. But Sam Kruger is a University of Texas finance professor, and he says that came with a downside.

SAM KRUGER: While they were doing that, did they also open up the system to potential fraud and abuse? And I think if you look at the data, the answer seems to be yes.

PFEIFFER: And, Ari, Kruger said that to me a few months ago, and this report out today by the Select Subcommittee on the Coronavirus Crisis shows that he was correct. It says many fintechs had almost no fraud protection. They had barely any oversight. And Kruger estimates of about 11 million loans issued, more than a million show signs of fraud, totaling $64 billion of wasted taxpayer money.

SHAPIRO: So were these financial technology companies just turning a blind eye, or did they actually know what was going on?

PFEIFFER: The report said they did know what was going on. And that's based on more than 80,000 pages of internal documents from more than a dozen fintechs. And it's a very damning paper trail. I'll give you a sampling. Workers at a fintech called Blueacorn said they were pressured to push through loans even if they doubted their authenticity. They were also told reviewing a loan should take less than 30 seconds. A fintech called Womply had fraud prevention systems described as, quote, "put together with duct tape and gum." Meanwhile, a Womply CEO had been convicted of insider trading yet was leading its fraud prevention efforts. And a company called Celtic Bank said partnering with a fintech called Bluevine created a, quote, "surge in fraud that has strained all of our resources." The report goes on and on and on with these kinds of examples.

SHAPIRO: If the companies knew that fraud was widespread, why didn't they try harder to stop it?

PFEIFFER: Some of them deflected blame onto the Trump administration. An employee at a fintech called Kabbage, which is facing a class action suit over how it handled PPE loans, by the way - that employee said, quote, "it's the SBA's rules that created fraud." That's a reference to a lack of safeguards, which the government defends by saying that moving fast saved businesses from collapse. But the report says these fintechs also had a reason to look the other way, and that's because they got a fee for every loan processed. Womply, for example, had more than $2 billion in PPP processing fees. So here's Sam Kruger again.

KRUGER: It's potentially a pretty large payday, and the processing fees would be a pretty large incentive to try and generate as many loans as possible.

PFEIFFER: So, Ari, you can see why they would keep approving loans even if they suspected fraud or weren't sure an applicant was really eligible. And the loans were 100% guaranteed by the government, so the fintechs were taking on no risk.

SHAPIRO: And what have the companies said about all of this?

PFEIFFER: I've heard back from three of them - Bluevine, Celtic Bank and Kabbage. They all basically say they corroborated with the government, they're proud of the work they did, and they did the best they could in an unprecedented situation.

SHAPIRO: Does the report make recommendations to fix this?

PFEIFFER: It makes several. The main one says that if there are future government aid programs, the SBA should aggressively review loans on a wide scale before forgiving them, which sounds obvious, but that is not what happened with the Paycheck Protection Program.

SHAPIRO: NPR's Sacha Pfeiffer. Thank you.

PFEIFFER: You're welcome, Ari. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Sacha Pfeiffer is a correspondent for NPR's Investigations team and an occasional guest host for some of NPR's national shows.