The Promise and Peril of Fintech Companies in Small Business Lending Programs

Researchers at the University of Texas at Austin found that PPP loans processed by fintech lenders were generally more likely to carry suspicious signs than loans processed by traditional banks and credit unions. did. However, there are some exceptions. A University of Texas researcher found that his PPP loans processed by his three established fintech lenders—Capital One, Square, and Intuit—had a particularly low rate of potential fraud indicators. did.

Differences in fraud rates indicate different underwriting practices by fintechs and other lenders participating in PPPs. Some fintech lenders appear to engage in more stringent underwriting practices, such as conducting due diligence on prospective clients and adhering to know-your-customer rules, resulting in lower potential fraud rates. did. Wide variations in practice have been made possible by the lax rules governing PPP programs. The rule relied on loan applicants’ self-certification rather than verifying the accuracy of the documents and tax information they provided in support of their loan request. As the Government Accountability Office wrote in June 2020, “To streamline the process, the SBA has required minimal loan underwriting from lenders. Because it was limited to actions such as supporting documents, the program became susceptible to rogue applications.”

Earlier this month, the House Special Subcommittee on the Coronavirus Crisis published a report on the role of fintech in PPP fraud. The report said, “Congress and the SBA are asking whether unregulated businesses such as fintech, which are not subject to the same regulations as financial institutions, should be allowed to play a leading role in future federal lending programs. should be carefully considered,” he said. I urge this commission and her SBA to review that report, as it contains troubling details about the practices of some of the major fintech companies that have participated in the PPP.

SBA’s role in evaluating fintech lenders

some fintech companies No It seems unlikely that there are flaws inherent in the fintech model that make these lenders easier to exploit, as they are related to the high likelihood of PPP fraud. Rather, the evidence suggests that the government did not do enough to ensure that nontraditional lenders participating in his PPP implemented adequate anti-fraud controls.

There is an opportunity to learn lessons from 2020 if SBA pursues proposals to expand participation in its lending program beyond traditional lenders. Unlike the chaotic days of March and April 2020, now is the time for Congress and the SBA to take careful steps to get this right before the next big disaster strikes.

In spring 2020, a fintech industry group successfully lobbied the government to allow them to participate in the Paycheck Protection Program. SBA issued interim rules governing his PPP on April 2, 2020. This is the day before the program begins accepting loan applications.

There was good reason for the expansion of participation. With unemployment skyrocketing, speed was key for him in spring 2020. Expanding participation to more lenders means more loans can be processed faster, and funds can be paid more fairly.

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