In a June 3, 2022 court filing, Kabbage, Inc. (doing business as KServicing), a fintech lender, disclosed that it was under investigation by the U.S. Department of Justice (“DOJ ”) under the False Claims Act. The investigation, Kabbage further revealed, relates to its Paycheck Protection Program (“PPP”) loan approval practices. Three months earlier, the DOJ charged a former CEO of a fintech lender (MBE Capital Partners) with wire fraud, bank fraud and misrepresentation to the Small Business Administration (“SBA”), in what we believe is the first criminal prosecution involving the activities of a PPP lender.

These recent developments and others are part of what appears to be an important new DOJ initiative: an enforcement activity targeting fintech companies and other financial institutions that have processed loans under the PPP. The PPP was signed into law under the CARES Act on March 27, 2020, in response to Covid-19 and was launched by the Small Business Administration (“SBA”) on April 3, 2020. Nearly $800 billion has been disbursed under the PPP through the closure of the program in May 2021.

Recent reports suggest that the DOJ’s focus is not just on the lenders listed above. Meanwhile, the House Select Subcommittee on the Coronavirus Crisis has announced investigations into at least six fintech lenders: Kabbage, BlueVine, Cross River Bank, Celtic Bank, Blue Acorn PPP and Womply. Additionally, some investigative media reports and academic articles have highlighted concerns both about abuse and fraud related to PPP loans and the important role of the fintech industry in administering these loans. The following are examples of such findings/claims:

• Of the nearly $800 billion disbursed in PPP loans, one study classifies at least $64 billion of these loans as “suspicious”.
• PPP loans generated $38 billion in lender processing fees, of which nearly $9 billion went to fintech lenders.
• Fintech loans are considered “highly suspect” at a rate more than six times that of traditional lenders.
• Fintechs processed about 15% of PPP loans overall, but were the lender in 75% of a sample of individual lawsuits in which the DOJ alleged PPP fraud.
• The top 12 lenders with the highest rate of loans deemed “suspicious” are all fintech lenders.

Most or all of these claims can, and likely will be, heavily disputed and questioned by fintechs. What is less contestable, however, is that fintechs are currently being targeted for scrutiny by government authorities focused on PPP lending. As investigations continue, key areas of attention will likely include dealing with loans that are fraudulent and/or outside of SBA parameters, fair lending issues, and bank secrecy law compliance. and anti-money laundering requirements.