Congress widens fraud probe to more companies
A congressional subcommittee aimed at investigating financial fraud during the pandemic broadened its probe into online lending this week to include two of the most prominent processors of coronavirus assistance.
Rep. James Clyburn, D-S.C., chairman of the Select Subcommittee on the Coronavirus Crisis, sent letters to Blueacorn and Womply on Tuesday requesting information about fraud prevention. Both emerged as major players that fused tech and financing to speed up lending through the government’s Paycheck Protection Program.
Womply had no lending experience before COVID-19 and Blueacorn did not exist, yet together the companies captured more than $3 billion in fees – eclipsing any of their direct competitors.
The startups are not banks but worked as middlemen, marketing to struggling businesses and quickly approving loans with partner banks, with backing by the Small Business Administration. The companies make their money by capturing the governmentpaid fee for facilitating the loans.
“Unfortunately, many of these fees may have been earned by processing fraudulent or ineligible loan applications,” wrote Clyburn in his letter requesting a trove of internal compliance documents, including “emails, chat room logs and transcripts, direct electronic messages and minutes” that discussed financial crimes.
Womply worked with 17 lenders and processed 1.4 million loans totaling more than $20 billion of the government’s $800 billion program. Blueacorn processed at least $14 billion in loans, according to Clyburn.
In August, USA TODAY spotlighted a University of Texas, Austin paper that identified more than 1.8 million loans with indications of potential fraud by borrowers. Among the most egregious examples cited by the researchers involved Kabbage, Womply and Blueacorn.
The Texas report outlined how borrowers, including criminals, could create fake companies with fake head counts and fake salaries to capture a slice of the pandemic assistance, facilitated by the largely automatic review of fintech lenders.
“I am deeply troubled by reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud,” Clyburn wrote. “This failure may have led to millions of dollars worth of FinTech-facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses.”
Fintechs like the startups have raised concerns throughout the pandemic among regulators at the SBA, Department of Justice and Congress. In February, Clyburn sent letters in his probe to Kabbage, BlueVine, Cross River Bank and Celtic Bank.
Clyburn gave Womply and Blueacorn until Nov. 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 had focused on serving a “traditionally overlooked population.”