A Congressional subcommittee to investigate financial fraud during the pandemic expanded its online lending investigation this week to include two of the most important processors in coronavirus assistance.
Representative James Clyburn, DS.C., chairman of the select subcommittee on the coronavirus crisis, sent letters to Blueacorn and Womply on Tuesday requesting information on fraud prevention. Both became major players who merged technology and finance to accelerate lending through the government’s paycheck protection program.
Womply had no lending experience before COVID-19 and Blueacorn didn’t exist, but together the companies captured more than $ 3 billion in fees – eclipsing their direct competitors.
The startups are not banks but have worked as intermediaries, marketing to distressed companies and quickly approving loans with partner banks, supported by the Small Business Administration. Businesses earn their money from fees paid by the government to facilitate loans.
“Unfortunately, many of these fees may have been earned by processing fraudulent or ineligible loan applications,” Clyburn wrote in his letter requesting a wealth of internal compliance documents, including “emails, journals and reports. Chat room transcripts, direct email messages and “minutes that discussed financial crimes.”
Womply worked with 17 lenders and processed 1.4 million loans totaling over $ 20 billion from the government’s $ 800 billion program. Blueacorn has processed at least $ 14 billion in loans, according to Clyburn.
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In August, USA TODAY highlighted a University of Texas at Austin article that identified over 1.8 million loans with indications of potential borrower fraud. Some of the more egregious examples cited by researchers involved Kabbage, Womply, and Blueacorn.
The Texas report described how borrowers, including criminals, could set up bogus businesses with bogus headcount and bogus salaries to capture some of the pandemic aid, aided by the largely automatic scrutiny of lenders.
“I am deeply troubled by reports that FinTech lenders and their banking partners have failed to properly vet PPP loan applications for fraud,” Clyburn wrote. “This failure may have led to the granting of millions of dollars in FinTech-facilitated PPP loans to fraudulent, non-existent or otherwise ineligible companies.”
Fintechs have raised concerns throughout the pandemic among regulators at the SBA, the Department of Justice and Congress. In February, Clyburn sent letters in connection with his investigation to Kabbage, BlueVine, Cross River Bank and Celtic Bank.
Clyburn gave Womply and Blueacorn until November 26 to indicate if they would cooperate with the requests.
In a previous statement to USA TODAY, Blueacorn CEO Barry Calhoun said the company was “incredibly proud of the work we have undertaken to dramatically reduce fraud in the PPP program,” adding that it is focusing on the service of a “traditionally neglected population”. A spokeswoman said on Tuesday that the company would cooperate with the congressional investigation.
Toby Scammell, founder and CEO of Womply, called PPP a “flawed program” that has nevertheless managed to save millions of small businesses.
“Womply helped the program succeed, and I’m especially proud that our efforts leveled the playing field so that very small US and minority-owned businesses were able to participate,” Scammell said Tuesday.
On its website, Womply asks anyone who suspects fraud to report it directly to the SBA. “We know that the vast majority of PPP borrowers are deserving and eligible businesses,” he says. “We will seek to combat potential fraud in a way that minimizes negative impacts on legitimate borrowers using our platform. “
Nick Penzenstadler is a journalist with the USA TODAY investigative team. Contact him at email@example.com or @npenzenstadler, or on Signal at (720) 507-5273.