WASHINGTON–The Justice Department has launched an investigation into whether a number of fintechs may have made mistakes while distributing billions of dollars in Paycheck Protection Program (PPP) loans, according to a new report.
Among the companies being investigated is Atlanta-based Kabbage, Reuters is reporting.
Reuters, which said its report is based on three sources, said the Justice Department’s civil division is probing whether Kabbage and other fintech companies miscalculated how much aid borrowers were entitled to from the PPP due to confusion over how to account for payroll taxes, the three people said.
Potential Tax Issues?
A fourth person with direct knowledge of the matter also told Reuters a number of fintechs were being probed over the PPP tax issues, but declined to identify the companies involved.
As Reuters noted, a probe does not necessarily indicate wrongdoing and it was unclear if the investigation will result in penalties against the companies.
A spokesperson for the Justice Department declined to comment to Reuters.
In addition, Kabbage Inc., which manages Kabbage’s PPP loans and also goes by the brand K Servicing, did not respond to multiple calls and emails seeking comment, Reuters said, while spokespeople for American Express Co., which in August 2020 bought most of Kabbage’s assets other than its loan portfolio, declined to comment.
Reuters reported here in November 2020 that a handful of federal agencies were scrutinizing lenders over a range of PPP issues, including failing to properly vet borrowers' payroll expense calculations and potentially discriminatory lending policies.
According to Reuters, fintechs have attracted government scrutiny because they processed loans at high speed using software that in some cases had glitches, causing errors in applications, one of the sources said. Other industry sources told Reuters fintechs’ use of automated lending platforms with few manual checks caused errors to be replicated across thousands of loans.
$26B In Loans
SBA data cited by Reuters showed fintechs have issued around $26.5 billion worth of PPP loans. Kabbage made nearly 300,000 PPP loans worth $7 billion between April 3, 2020, and Aug. 8, 2020, according to its website.
Lenders have said they were under enormous pressure to lend vast sums of money to millions of businesses quickly, while having to keep up with ever-changing PPP rules.
A spokeswoman for the SBA declined to comment.