FinTech Companies Enabled Wage Protection Program Scams : NPR

A new congressional report found that financial technology companies enabled fraud in the Paycheck Protection Program, which provided forgivable loans to small businesses during the pandemic.


Fraud in payroll protection programs has been largely driven by financial technology companies. This is stated in today’s report to Congress. The program, known as PPP for short, provided forgivable loans to small businesses during the pandemic. NPR’s Sacha Pfeiffer is reporting. Hey, Sacha.


SHAPIRO: So what are we talking about in terms of financial technology companies? What company is this exactly?

PFEIFFER: So these are called fintechs for short. It’s basically just a fancy name for a business that uses new technology to offer financial services like PayPal and Square. The Paycheck Protection Program is implemented by the Small Business Administration. But banks used to process loans. And so many people asked for loans that the banks were overwhelmed. So the government allowed fintechs to participate, even though some were brand new, didn’t make small business loans, and weren’t regulated like traditional banks.

SHAPIRO: That sounds like a warning sign. Why is the government giving this opportunity to untested companies?

PFEIFFER: Because they wanted to get their money out as quickly as possible, and fintechs boasted that they could do it faster than old-fashioned banks. And they did. They also made more loans than banks to small and minority businesses. Fintechs have accelerated and increased lending to women and people of color, which has been seen as a good thing. But Sam Krueger, a finance professor at the University of Texas, said it had its downsides.

SAM KRUGER: And while they were doing that, did they open up a system for fraud and abuse? And when I look at the data, the answer seems to be yes.

PFEIFFER: Ari, that’s what Krueger told me months ago, and today’s report from the Select Subcommittee on the Coronavirus Crisis shows that he was right. It said many fintech fraud protections were almost non-existent. They were almost unsupervised. Krueger also estimates that about 11 million loans were issued, more than a million of which showed signs of fraud, totaling $64 billion in wasteful use of taxpayer money.

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

PFEIFFER: They knew what was going on, the report says. It is based on more than 80,000 pages of internal documents from more than a dozen fintechs. And it’s a terrible paper trail. Let me give you a sample. Employees at a fintech company called Blueacorn said they were being asked to make loans despite doubts about their authenticity. And they were told it would take less than 30 seconds to check the credit. A fintech called Womply had a fraud prevention system that it described as “a scope and a piece of gum.” Meanwhile, Womply’s CEO was charged with insider trading, but led fraud prevention. Celtic Bank also said its partnership with a fintech company called Bluevine had led to a “surge of fraud that drained all our resources”. The presentation continues with examples of this type.

SHAPIRO: If companies knew fraud was widespread, why didn’t they try to stop it?

PFEIFFER: Some of them blamed the Trump administration. An employee of Kabbage, a fintech company, is facing a lawsuit over how it handled the PPE loan, and the employee said it was “a fraud on the SBA.” The government’s swift action is indicative of a lack of protections it claims have saved businesses from collapse. But according to the report, these fintechs had a reason to go the other way, and that was because they charged a fee on every loan they processed. For example, Womply had over $2 billion in PPP development fees. And here comes Sam Kruger again.

KRUGER: It could be a pretty big payday, and the processing fee would be a big incentive to try and create as many loans as possible.

PFEIFFER: So, Ari, you can see why they continue to approve loans even when they suspect fraud or doubt that the applicant actually qualifies. The loans were 100% guaranteed by the government, so fintechs were risk-free.

SHAPIRO: What did the companies say about all this?

PFEIFFER: I heard back from three of them: Bluevine, Celtic Bank and Kabbage. All of them are basically proud of what they have proven and done with the government and say that they did their best in unprecedented circumstances.

SHAPIRO: Does the report include recommendations to fix that?

PFEIFFER: It makes several. The bottom line is that if there are any future government bailout programs, the SBA would have to do an extensive review before forgiving loans, but that’s not the case with the Wage Protection Program.

SHAPIRO: NPR’s Sacha Pfeiffer. Thank you.

PFEIFFER: You’re welcome, Ari.

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