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The US Department of Justice has been investigating whether financial technology companies may have erred while distributing billions of dollars in pandemic aid to struggling SMEs.
The investigation is led by the Justice Department’s civil division and it is examining whether Kabbage and other fintech companies miscalculated how much aid borrowers were entitled to from the Paycheck Protection Program (PPP) due to confusion over how to account for payroll taxes, three people with knowledge of the matter told Reuters.
A probe does not necessarily indicate wrongdoing and it was unclear if the investigation will result in penalties against the companies, two of the three sources said.
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 also said that fintechs’ use of automated lending platforms with few manual checks caused errors to be replicated across thousands of loans.
In November 2020, Reuters reported that a handful of federal agencies were scrutinising lenders over a range of PPP issues, including failing to properly vet borrowers’ payroll expense calculations and potentially discriminatory lending policies.
Under the PPP, big banks, community lenders and fintechs have dispensed millions of government-backed loans to small businesses hurt by the pandemic lockdowns. If borrowers spend the money on payroll and other business expenses, the government repays the lender on behalf of the borrower.
A spokesperson for the Justice Department declined to comment. Kabbage, which manages Kabbage’s PPP loans, did not respond to multiple calls and emails seeking comment.
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