A brand-new congressional report discovers that monetary technology companies allowed fraud in the Income Protection Program, which gave forgivable loans to small companies throughout the pandemic.
ARI SHAPIRO, HOST:
Rampant fraud in the Income Protection Program was largely due to financial technology companies. That’s according to a congressional report out today. The program, called PPP for brief, offered loans, some of them forgivable, to small companies during the pandemic. NPR’s Sacha Pfeiffer is covering the report. Hey, Sacha.
SACHA PFEIFFER, BYLINE: Hey, Ari.
SHAPIRO: So we’re discussing financial technology companies like what? What type of business is that precisely?
PFEIFFER: So these are called fintechs for short. And it’s basically simply an elegant name for a company that utilizes newer technology to use financial services – PayPal, Square, companies like that. The Paycheck Defense Program was run by the Small company Administration. However banks processed the loans. And so many people obtained loans that banks got overwhelmed. So the government let fintechs get involved even though a few of them were brand-new and had never ever done small company lending and are not regulated like standard banks.
SHAPIRO: Well, that appears like a warning sign. Why would the federal government gamble on untested companies like that?
PFEIFFER: Precisely – since it wanted to get money out there as rapidly as possible, and fintechs boasted that they might do that faster than old-fashioned banks. And they did. They also made more loans to small and minority-owned businesses than banks did. Fintechs worked quickly, and they increased providing to females and people of color, which was viewed as a good thing. But Sam Kruger is a University of Texas financing professor, and he states that featured a downside.
SAM KRUGER: While they were doing that, did they also open up the system to prospective fraud and abuse? And I believe if you take a look at the information, the response seems to be yes.
PFEIFFER: And, Ari, Kruger stated that to me a couple of months ago, and this report out today by the Select Subcommittee on the Coronavirus Crisis reveals that he was proper. It says numerous fintechs had almost no scams protection. They had barely any oversight. And Kruger estimates of about 11 million loans released, more than a million show signs of scams, totaling $64 billion of wasted taxpayer cash.
SHAPIRO: So were these financial technology companies simply disregarding, or did they in fact understand what was going on?
PFEIFFER: The report said they did understand what was going on. And that’s based on more than 80,000 pages of internal files from more than a lots fintechs. And it’s a very damning proof. I’ll give you a sampling. Employees at a fintech called Blueacorn stated they were pushed to press through loans even if they doubted their authenticity. They were likewise told evaluating a loan should take less than 30 seconds. A fintech called Womply had scams avoidance systems referred to as, quote, “assembled with duct tape and gum.” Meanwhile, a Womply CEO had been founded guilty of insider trading yet was leading its fraud prevention efforts. And a business called Celtic Bank stated partnering with a fintech called Bluevine created a, quote, “surge in fraud that has actually strained all of our resources.” The report goes on and on and on with these sort of examples.
SHAPIRO: If the business knew that fraud was extensive, why didn’t they try more difficult to stop it?
PFEIFFER: A few of them deflected blame onto the Trump administration. A staff member at a fintech called Kabbage, which is facing a class action fit over how it handled PPE loans, by the method – that employee stated, quote, “it’s the SBA’s guidelines that developed scams.” That’s a referral to an absence of safeguards, which the government safeguards by stating that moving fast conserved businesses from collapse. But the report says these fintechs likewise had a reason to look the other method, which’s because they got a charge for each loan processed. Womply, for instance, had more than $2 billion in PPP processing charges. So here’s Sam Kruger again.
KRUGER: It’s potentially a quite big payday, and the processing charges would be a pretty big reward to try and generate as numerous loans as possible.
PFEIFFER: So, Ari, you can see why they would keep authorizing loans even if they presumed fraud or weren’t sure a candidate was truly eligible. And the loans were 100% ensured by the federal government, so the fintechs were handling no risk.
SHAPIRO: And what have the business said about all of this?
PFEIFFER: I’ve heard back from 3 of them – Bluevine, Celtic Bank and Kabbage. They all generally state they substantiated with the federal government, they take pride in the work they did, and they did the best they could in an unmatched circumstance.
SHAPIRO: Does the report make recommendations to fix this?
PFEIFFER: It makes several. The primary one states that if there are future federal government aid programs, the SBA ought to aggressively evaluate loans on a broad scale prior to forgiving them, which sounds apparent, but that is not what happened with the Income Protection Program.
SHAPIRO: NPR’s Sacha Pfeiffer. Thank you.
PFEIFFER: You’re welcome, Ari.
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