An investigation by the congressional subcommittee on financial fraud was launched during the pandemic. This week, it expanded its inquiry into online lending to include the two most important processors of coronavirus help.
Rep. James Clyburn (D-S.C.), chairman of the Select Subcommittee on Coronavirus Crisis sent Tuesday letters to Blueacorn, Womply, and requested information on fraud prevention. Both emerged as major players that fused tech and financing to speed up lending through the government’s Paycheck Protection Program.
Womply had no lending experience before COVID-19 and Blueacorn did not exist, yet together the companies captured more than $3 billion in fees – eclipsing their direct competitors.
The startups are not banks but worked as middlemen, marketing to struggling businesses and quickly approving loans with partner banks, backed by the Small Business Administration. The companies make their money through a government-paid fee for facilitating the loans.
“Unfortunately, many of these fees may have been earned by processing fraudulent or ineligible loan applications,” Clyburn wrote in his letter requesting a trove of internal compliance documents, including “emails, chat room logs and transcripts, direct electronic messages and minutes” that discussed financial crimes.
Womply worked with 17 lenders and processed 1.4 million loans totaling more than $20 billion of the government’s $800 billion program. Clyburn reports that Blueacorn has processed loans worth at least $14 billion.
More:Study by Texas University shows that fraud was enabled through online financial services.
USA TODAY reported in August on a University of Texas Austin paper which identified over 1.8 million loans that were indicative of possible fraud by the borrowers. Blueacorn, Womply, and Kabbage were some of the most shocking examples.
According to the Texas report, criminals could set up fake companies and get fake heads in order to tap into pandemic aid. This was possible thanks to the automatic approval of lenders.
“I am deeply troubled by reports alleging that financial technology (FinTech) lenders and their bank partners failed to adequately screen PPP loan applications for fraud,” Clyburn wrote. “This failure may have led to millions of dollars worth of FinTech-facilitated PPP loans being made to fraudulent, non-existent, or otherwise ineligible businesses.”
The pandemic has raised concern among the regulators of the SBA and Department of Justice, as well Congress. Clyburn wrote letters to Kabbage and BlueVine as part of his investigation.
Clyburn gave Womply and Blueacorn until Nov. 26 to indicate whether they would cooperate with the requests.
In a previous statement to USA TODAY, Blueacorn CEO Barry Calhoun said the company was “incredibly proud of the work we have undertaken to dramatically reduce fraud in the PPP program,” adding that it focused on serving a “traditionally overlooked population.” A spokeswoman said Tuesday the company would cooperate with the congressional inquiry.
Toby Scammell, founder and chief executive officer of Womply, called PPP “an imperfect program” that nonetheless succeeded in saving millions of small businesses.
“Womply helped the program succeed, and I am particularly proud that our efforts leveled the playing field, so America’s very small and minority-owned businesses were able to participate,” Scammell said Tuesday.
On its website, Womply directs anyone who suspects fraud to report it directly to the SBA. “We know the vast majority of PPP borrowers are deserving, eligible businesses,” it says. “We will seek to address potential fraud in a manner that minimizes the negative impacts to legitimate borrowers using our platform.”
Nick Penzenstadler is an investigative reporter for USA TODAY. Reach him at @[email protected] Or on Signal, (720) 507-52323.