U.S. lawmakers probe Kabbage, BlueVine and partner banks over pandemic loans -letters
Reuters
Published May 28, 2021 07:03AM ET
Updated May 28, 2021 07:21AM ET
By Koh Gui Qing
WASHINGTON (Reuters) - U.S. lawmakers have opened an investigation into financial technology companies Kabbage Inc and BlueVine and their partner banks for their roles in distributing billions of dollars in pandemic aid to small businesses, according to letters seen by Reuters.
The investigation, due to be announced on Friday, highlights how an unprecedented $780 billion loan program launched by the U.S. government to help companies weather the COVID-19 economic shutdown has led to legal and regulatory woes for lenders.
The loan scheme, known as the Paycheck Protection Program (PPP), has drawn criticism from regulators and the media for failing to implement adequate checks, resulting in widespread fraud.
Representatives for Kabbage Inc, which also goes by the brand K Servicing, and BlueVine did not respond to requests for comment on Thursday evening.
Under the PPP, lenders dispensed loans to small businesses hurt by the pandemic. If the borrower spent it on payroll and other business expenses, the government repaid the lender on the borrower's behalf. Some fintechs and banks teamed up, with the fintech processing the loan applications and the bank handling the loan.
The U.S. House Select Subcommittee on the Coronavirus Crisis has asked Kabbage, BlueVine and their partners Cross River Bank and Celtic Bank, respectively, to provide documents and information to detail the fraud controls and compliance systems they implemented for the PPP, as well as the revenues they earned in facilitating the program, the letters showed.
The Congressional requests for information do not necessarily indicate wrongdoing or mean the companies will incur penalties.
Representatives for American Express Co (NYSE:AXP), which last year bought most of Kabbage's assets other than its loan portfolio, Cross River Bank and Celtic Bank did not respond to requests for comment on Thursday evening. The letters, dated May 27, were addressed to the companies' chief executives and requested a response by June 11.
"I am deeply troubled by recent reports alleging that financial technology lenders and their bank partners failed to adequately screen PPP loan applications for fraud," said the letters, which were signed by Democratic U.S. representative James Clyburn, chairman of the subcommittee.
Get The News You Want
The U.S. Department of Justice's civil division is also investigating fintechs including Kabbage over whether they miscalculated how much PPP aid borrowers were entitled to due to confusion over how to account for payroll taxes, Reuters reported earlier this month. Sources with knowledge of the matter said at the time that fintechs have attracted regulatory scrutiny in part because of a high incidence of fraud associated with their loans. Government data shows fintechs issued around $26.5 billion in PPP loans.
According to the letters, Kabbage issued $7 billion worth of PPP loans between April and August of last year, making it the second-largest PPP lender by application volume. BlueVine is estimated to have issued over $4.5 billion in PPP loans, ranking it among the top 10 PPP lenders by application volume. Lenders have said they were under enormous pressure to make millions of loans quickly, while keeping up with ever-changing PPP rules.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.