FinTech, SBA, Justice Department, Kabbage, U.S. Justice Department, Small Business Administration, U.S. Department of Justice

The U.S. Department of Justice is investigating whether financial technology companies including Atlanta-based Kabbage may have erred while distributing billions of dollars in pandemic aid to struggling small businesses, three people with knowledge of the matter told Reuters.

The investigation, led by the Justice Department’s civil division, 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, the three people said.

A fourth person with direct knowledge of the matter said a number of fintechs were being probed over the PPP tax issues but declined to provide names.

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. A spokesperson for the Justice Department declined to comment.

Kabbage, which manages Kabbage’s PPP loans and also goes by the brand K Servicing, did not respond to multiple calls and emails seeking comment. Spokespeople for American Express, which in August bought most of Kabbage’s assets other than its loan portfolio, declined to comment.

The previously unreported probe underscores how the unprecedented $780 billion program, which was launched by the Small Business Administration (SBA) on April 3, 2020, to mitigate the fallout from COVID-19 shutdowns, has created legal and reputational risks for some lenders.

Reuters reported in November 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.

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.

While the program has been hailed as a lifeline for small businesses, its launch was rushed and many of its rules were initially unclear. One challenge lenders faced in April 2020 was how to account for federal, state and local taxes when calculating a company’s overall payroll costs, which determined their maximum allowable loan.

Some lenders over-accounted for taxes, potentially inflating loans, while others under-accounted for taxes, potentially denying borrowers aid they were entitled to, the two 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.

SBA data 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.


Japan travel news, japan travel guides, japan holiday destinations and japan reviews

LATEST NEWS

NEWS RELATED

Jitendra Gupta’s neobank Jupiter wants to be Swiggy for banking: Will it work?

Jupiter wants to be the go-to banking app for all smartphone users Jupiter, the neobank started by fintech veteran Jitendra Gupta said on June 23 that it had got 30,000 sign ups in three weeks, an encouraging response for one of the most audacious bets by internet startups in recent…

Read more: Jitendra Gupta’s neobank Jupiter wants to be Swiggy for banking: Will it work?

Muthoot Pappachan acquires 54% stake in Hyderabad-based fintech

Muthoot Pappachan Group announced investment in Paymatrix, a fintech startup, through its flagship entity – Muthoot FinCorp Limited (the Company) and associate company, The Thinking Machine Media (TMM) Muthoot Pappachan Group (MPG) is now a majority investor in Paymatrix with full exit to various investors. MPG acquired 54% equity shareholding…

Read more: Muthoot Pappachan acquires 54% stake in Hyderabad-based fintech

It’s a bank, PMC will be part of, it’s not takeover, says Centrum's Jaspal Bindra

(This story originally appeared in on Jun 19, 2021) For Jaspal Bindra, who headed Standard Chartered Bank’s Asia operations in his 40s, the road back to banking is a challenging one. Bindra, who exited StanChart to turn entrepreneur by acquiring a stake in Centrum in 2016, will have to build…

Read more: It’s a bank, PMC will be part of, it’s not takeover, says Centrum's Jaspal Bindra

HDFC Bank to set up 'digital and enterprise factories' to curb outages

Mumbai: HDFC Bank Ltd. will set up digital and enterprise units to strengthen its online infrastructure and handle a larger volume of transactions after customers faced repeated outages. It plans to hire 500 people from diverse backgrounds—from data analytics and cloud computing to artificial intelligence (AI) and machine learning—for the…

Read more: HDFC Bank to set up 'digital and enterprise factories' to curb outages

India tops global market in number of finance app installs: AppsFlyer

Download of fintech apps grew 26% year on year in India in 2020 and 132% globally, according to Appsflyer’s State of Finance App Marketing report. India topped the global market in the number of finance app installs. More than 80% of finance app installs in India were for financial services,…

Read more: India tops global market in number of finance app installs: AppsFlyer

UK fintech company Volt raises £17M to build global instant payments network

Volt, a London-based company building the infrastructure for global instant payments, has secured $23.5 million (approx £17 million) funding in a Series A round.  The round was led by EQT Ventures, with participation from existing investors including, Augmentum Fintech PLC and Fuel Ventures. Several angel investors like Robert Kraal as…

Read more: UK fintech company Volt raises £17M to build global instant payments network

Slice brings on board Siva Kumar Tangudu as CTO

slice, a fintech startup and credit card challenger, has announced the appointment of Siva Kumar Tangudu as the company’s new chief technology officer, said a statement issued today. Tangudu brings with him leadership expertise of over 15 years across senior and pivotal roles at Myntra, HackerRank, Microsoft, and Oracle, to…

Read more: Slice brings on board Siva Kumar Tangudu as CTO

Cheque bounces hint at asset stress at NBFCs

Mumbai: High cheque bounce rates in May are indicating asset quality troubles for non-bank financing companies(NBFCs). Cheque bounce rates tracked by the National Payments Corporation of India’s (NPCI) e-NACH (National Automated Clearing House) platform rose by more than 250 basis points in value in May over April. A halt in…

Read more: Cheque bounces hint at asset stress at NBFCs

Google Pay to allow 'tokenized' payments through credit, debit cards

Revolut vs Curve: Which one is best for you?

Flexmoney raises $4.8 million in funding from Pravega Ventures, others

London fintech startup Coupay secures £200K to help SMEs get payment faster

Yes Bank to shift base to former Reliance Infra headquarters in Mumbai

Paytm unit seeks RBI exemption from NBFC tag

German fintech startup Moonfare plans Singapore foray to ramp up Asia ops

Meet Hydr, women-led fintech from Manchester offers SMEs immediate payment for their invoices

OTHER NEWS