DOJ reportedly investigating Kabbage, online lenders over PPP loans

Diving brief:

  • The Justice Department is investigating whether online lenders, including Kabbage, erred in handing out government-backed small business relief loans, according to sources quoted by Reuters.

  • The Justice Department’s Civil Division is investigating whether Kabbage and other fintech companies miscalculated the amount of Paycheck Protection Program (PPP) assistance borrowers were entitled to, citing confusion over the how to account for payroll taxes, three unnamed DOJ sources told the news service.

  • Atlanta-based Kabbage has been one of the program’s most prolific non-bank participants, issuing 300,000 PPP loans worth $7 billion between April 3, 2020 and August 8, 2020, according to its website. . American Express purchased a significant portion of the fintech’s assets in August, except for its loan book, which is owned by Kabbage, Inc. and has been doing business as K Servicing since the acquisition.

Overview of the dive:

The DOJ investigation does not necessarily indicate wrongdoing, a source told Reuters, adding that it is unclear whether the probe will result in any sanctions against the companies.

The question is whether fintech lenders have correctly included payroll taxes in determining the size of borrowers’ payrolls, the sources say.

Some lenders overstated taxes, potentially inflating loans, while others understated taxes, potentially causing borrowers to be denied the aid they were entitled to, sources with the service said. hurry.

Fintechs processed PPP loans using software that sometimes glitched, causing application errors, a source said.

Another source said fintechs’ use of automated lending platforms with few manual checks was causing errors to be replicated across thousands of loans.

The ability to participate as direct lenders in the SBA lending program was a historical moment for fintech companies, which were excluded from the PPP during the first weeks of the program last year.

PPP loans, intended to help small businesses struggling with the pandemic, are forgivable if borrowers meet certain conditions, such as using the funds to maintain payrolls and retain employees.

The speed at which the program was rolled out, as well as the hurdles faced by lenders amid unclear and often changing SBA guidelines, have drawn attention in the past.

The Office of Government Accountability (GAO) in June said the number of PPP loans approved, the speed with which they were processed and the limited guarantees left the program open to “significant risk that some fraudulent or inflated applications will be approved.”

Since May 2, the The SBA said it approved over 10.8 million PPP loans totaling $780 billion. Loans issued by fintechs accounted for approximately $26.5 billion of loans.

The SBA and American Express declined to comment on the investigation, while Kabbage did not respond to multiple requests for comment, Reuters said.

Comments are closed.