OPS loan investigation links fraudulent loans to Fintech companies

• A federal investigation blames fintechs for widespread Paycheck Protection Program loan fraud.
• The resulting report called out fintechs and lenders it said failed to screen for fraudulent claims.
• That could jeopardize fintechs’ participation in future federal lending programs.

America’s fintech darlings became Paycheck Protection Program MVPs by easing the process for troubled small business owners, but now they’re in hot water over suspicions they facilitated fraud.

The US House Select Subcommittee on the Coronavirus Crisis released a report this month that named Blueacorn, Womply, Bluevine and Kabbage among fintechs and small business lenders that failed to prevent fraudulent loans.

Small businesses benefited most from fintechs’ participation in the program because simpler online applications meant increased access to government funding, especially for underrepresented founders who were largely left out of initial PPP rounds. Now, the report’s findings put fintechs under scrutiny and could jeopardize their participation in future government programs.

The Paycheck Protection Program was a federal rescue program intended to help the 7.5 million U.S. small businesses at risk of closing permanently in the first year of the COVID-19 pandemic. The Small Business Administration awarded nearly $800 billion in PPP loans to 11.47 million businesses.

Since then, the Justice Department has indicted several business owners on charges that they fraudulently obtained forgivable PPP loans, alleging that they never used the funds for qualified purposes, such as employee wages or certain business expenses. In two notable examples, a man pleaded guilty to buying a Lamborghini with one of the government-funded loans, and the Justice Department indicted another man on charges that he bought an alpaca farm with PPP money.

In a two-year investigation into OPS use, the House subcommittee interviewed witnesses, managers and former employees and obtained internal communications within the company. The resulting report places much of the blame on the fintech companies and lending partners, saying they failed to investigate fraudulent claims and “abdicated that responsibility, in many cases recklessly.”

Kabbage, Blueacorn and Womply did not immediately respond to Insider’s request for comment.

Here are the biggest takeaways from the federal investigation.