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Scammers Use FinTech To Carry Out PPP Loan Fraud

The initial wave of Covid-19 has swept the world off its feet and left the unprepared small businesses in a catastrophic situation. Governments across the world were attempting to patch together support options for the struggling businesses on the verge of collapse. But unfortunately, the PPP set up to help out small businesses has also presented large opportunities for scammers. They used fintech and the vulnerable state of the situation to carry out the PPP Loan Fraud which worth can reach $20 billion. 

$2 Trillion Cares Act Widely Criticized By Americans

In the US, the $2 trillion Cares Act was established and as a part of it, the Paycheck Protection Program was set up in order to offer assistance. The restaurants, nail salons, cafes, and other small businesses were offered forgivable loans in order to survive the Covid-19 lockdowns that have forced them out of running. Having said that, although a good initiative, thousands of people across the country were left with no work and no income. Thus, in April, the program was widely criticized due to leaving too many people out and not moving at a sufficient speed. 

A Pressing Need To Distribute Money Quickly

The government was in an instant need to find a way to distribute the money quickly to desperate companies. That is when the web-based fintech companies came in, allowing for a much more efficient tempo of operations. Although it was met by a huge enthusiasm by the businesses, unfortunately, it was met by the equivalent enthusiasm by the PPP fraud scammers. 

FinTech Companies In Charge Of Managing Most PPP Fraudulent Loans

Fintech companies were in charge of managing the majority of the PPP loans that the U.S Department of Justice has later characterized as fraudulent. After performing an analysis of more than 100 loans, Bloomberg concluded that this number goes as high as 75%, while fintech companies have only been in charge of 15% total. Thus, PPP fraud was extremely common in the transactions that fintech companies were managing. 

Could A Google Check Prevent Some Of The Fraudulent Transactions?

As Bloomberg reports, something as trivial as a Google check could prevent some of the fraudulent transactions. Frequently the alleged businesses did not exist or were dormant. To illustrate, a borrower whose business had no online presence or business address and the address provided in the application was a single-family residence, got approved for $3 million. 

How Big Is The Percentage Of Fraudulent Transactions?

The cases that were so far reported by the Justice Department account for almost $200 million in fraud. While some may say that due to the overall amount of loans approved, $525 billion, the percentage that is fraudulent remains quite small. Having said that, it is reported that up to 5% of all transactions are raising red flags which represents a much larger sum than $200 million and goes above $20 billion. 

The COO of a data advisory company assisting in fraud detection, Josh Chung, has commented on it saying, “When you put it together with the SBA trying to get the money out there quickly, it’s a recipe for disaster.”

FinTech Startups Involved Say They Took All Precautionary Steps Necessary

The fintech companies that were among the ones responsible for helping in the transfers, Kabbage and Blue Vine, have said that they did take the steps to ensure the applications were legitimate. Kabbage has even stated that the security verification surpassed the standards that the SBA has issued. Similarly, the other fintech companies have also claimed that they performed all of the necessary fraud prevention and due diligence measures and the occurrence of loan fraud cannot be blamed on their inadequacy. 

Having said that, it is clear that fraud prevention techniques were not as advanced as they should have been. Are the fintech companies to blame? Not necessarily. First of all, cybersecurity threats and the ways in which scammers are able to realize loan fraud is becoming more sophisticated by the day. Moreover, in a situation of an unexpected crisis of that size, the priority was given to the timeliness of the matter. Money had to be distributed quickly. While there are technologies that can limit such threats, much of it is still, unfortunately, in its infancy.


Nel Tomczyk
Nel Tomczyk
Nel is a writer for RegTech Global. From her past experience, she gained a deep understanding of fintech, AI, regulations, and new technologies. She has vast experience in journalism and entrepreneurship.


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